Thursday, March 03, 2016

With coal companies sputtering, concern grows about who will pay for reclamation projects

The dramatic downturn of the coal industry "has raised questions about the ability of companies to follow through with that promise and whether taxpayers will be responsible for returning land and water to pre-mining conditions," Dylan Brown reports for Environment & Energy Publishing. "The 1977 Surface Mining Control and Reclamation Act (SMCRA) gave coal companies two general paths for securing reclamation—they can put down cash or assets as an assurance, or simply prove their finances are solid enough to foot the bill, a practice called self-bonding. Environmental groups and other watchdogs, long skeptical of self-bonding, are now calling for an immediate end to the practice. But regulators say change is not so easy or fast. Despite some reforms, companies still hold roughly $3.7 billion in self-bonding."

"Even though not all companies self-bond and not all states allow it, the biggest coal companies rely on self-bonding in the top-producing states," Brown writes. "Alpha Natural Resources Inc. and Arch Coal Inc. both took more than $1 billion in cleanup promises with them into bankruptcy. Now Peabody Energy Corp., the world's largest publicly traded coal mining company, holds roughly $1.4 billion in self-bonding." (E&E graphic)

"With Peabody shuffling assets and embroiled in bankruptcy rumors, environmentalists are demanding that states and the federal Office of Surface Mining Reclamation and Enforcement force the company to use its dwindling liquidity to secure third-party bonds," Brown writes. "But regulators say they are stuck between a rock and a hard place. They can either force broke companies to get new financial assurances and further imperil their finances or bet on them to survive bankruptcy and meet their cleanup liabilities. The two biggest coal-mining states, Wyoming and West Virginia, have chosen the latter. They have signed deals with companies putting some reclamation needs ahead of other creditors and are working on gradually moving the companies away from self-bonding."

"Companies are eligible for self-bonding under SMCRA if they have operated continuously for five years, have a net worth of at least $10 million and have fixed U.S. assets worth at least $20 million," Brown writes. "In addition, they must either keep an A credit rating or certain financial ratios. Total company liabilities can be no more than 2.5 times larger than the company's net worth or no more than 1.2 times larger than its assets. Some states with self-bonding give themselves the discretion to reject applicants. Others, like Kentucky and Montana, don't allow the practice at all. And while self-bonding is technically available in Pennsylvania, the Keystone State has never issued any self-bonds." (Read more)

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