West Virginia Admits That Its Coal Mine Reclamation Bonding System Is On Brink of Collapse

By Peter Morgan

A recent filing by the West Virginia Department of Environmental Protection (WVDEP) makes clear that state mine regulators are completely unprepared to deal with the coming tsunami of coal mine abandonments. Since 2015 when mine operators began entering bankruptcy, Sierra Club has warned that lax reclamation bonding policies left states vulnerable to the risk of mine abandonment. Now West Virginia has admitted, in court filings, that allowing a single mine operator to liquidate and abandon its mines could bankrupt one of the state’s primary surety bond providers, and would overwhelm and exhaust the state’s emergency “Special Reclamation Fund” for mine cleanup.

On March 26, WVDEP took the highly unusual step of asking a state court to place a coal mine operator—ERP Environmental Fund, Inc.—into receivership. WVDEP’s filings make clear that the agency’s main goal was to prevent ERP from entering bankruptcy. The filings further clarify that WVDEP is desperate to avoid an ERP bankruptcy because that would almost certainly lead to the state assuming responsibility for cleaning up the now valueless mines. That outcome is unacceptable to West Virginia because the state has failed to take the necessary steps—including steps mandated by the Surface Mining Act—to ensure that it has access to adequate funds to pay for such reclamation.

Congress created the Surface Mining Act in 1977 for the very purpose of avoiding exactly this scenario. The Surface Mining Act was passed to address the trend of coal mine operators abandoning mine sites once they’d extracted all of the coal, leaving behind hazardous sites that turned streams orange with mining pollution. In response, the Surface Mining Act created a system under which mine operators were required to provide financial assurances to guarantee that resources would be available to fully reclaim any mine should the operator go out of business or otherwise abandon the mine. But industry managed to insert significant loopholes into the Act, and to pressure state regulators into allowing operators to exploit those loopholes. The effect has been to shift the risk and cost of mine abandonment away from mine operators and onto state taxpayers and the communities who live around the mines.

DEP’s filings in the ERP case make clear that West Virginia has completely failed to protect its residents or comply with the Surface Mining Act. Under West Virginia’s coal mining laws, there are supposed to be two forms of financial assurances in place to cover the cost of reclaiming abandoned mines: a permit-specific surety bond, and a “Special Reclamation Fund” bond pool to cover any additional costs. In the case of ERP, the surety bonds total $115 million, but the actual reclamation costs far exceed that amount, meaning West Virginia would need to draw on the Special Reclamation Fund.

West Virginia has now acknowledged that it has failed to secure reliable surety bonds, and that its bond pool is drastically underfunded. West Virginia has acknowledged that under normal circumstances, “DEP would have to continue with its efforts to revoke all of ERP’s remaining permits, forfeit, ultimately, the full $115-plus million in surety bonds backing those permits, and transfer all of ERP’s permits to the State’s Special Reclamation Fund, which would thereupon assume responsibility for reclaiming and remediating all of ERP’s mining sites in accordance with the terms of its permits.” 

West Virginia has admitted that it can’t follow the law, however, because the surety bonds authorized by DEP are not actually reliable, and the Special Reclamation Fund does not contain adequate resources. West Virginia’s filings state that “DEP is concerned that forfeiting $115 million in surety bonds as more or less the same time could be problematic,” and that “transferring more than 100 permits to the Special Reclamation Fund would overwhelm the fund both financially and administratively.” In fact, West Virginia states that the consequence of allowing ERP to liquidate would be “potentially bankrupting [ERP’s] principle surety and administratively and financially overwhelming the Special Reclamation Fund, the State’s principle backstop for all revoked and forfeited mine sites in West Virginia.”

Unfortunately, West Virginia’s ERP filings—even if successful—will only delay the inevitable. ERP is just one operator. And West Virginia is not alone in its failure to require adequate bonding. There are many more operators in similarly precarious financial circumstances who will also seek to abandon their unreclaimed mines. Ohio maintains a bond pool similar to West Virginias—the Ohio Forfeiture Fund. Currently, that fund contains just $22.2 million to backstop $544.8 million in potential reclamation costs. Just one company—Murray Energy—has mines with over $200 million in reclamation liabilities. Murray Energy is itself currently in bankruptcy, and its plans to reorganize and continue operating have recently run into trouble as the company hemorrhages cash. The bill for state regulator’s industry-friendly reclamation bonding policies is about to come due. The question is who will be forced to pay it.

Peter Morgan is a staff attorney with the Sierra Club’s Environmental Law Program. He is one of the Sierra lawyers who have assisted Appalachian Mountain Advocates and Jim Hecker of Public Justice in West Virginia Highlands Conservancy’s many litigation efforts over these past 10 years or so.