Will taxpayers be stuck with the clean-up bill for surface coal mining sites?

The question of how to pay for mine reclamation flies beneath the surface of the general public even though the question is, literally, above the ground and right in front of the major coal producing regions. The problem is the ‘self-sticking’ that ensures their surface mines are ‘salvaged’.

Many small coal companies have to post a “bond” which they buy from an insurance company, which would provide the funds needed to restore surface mines so that the sites can be reused if the producer is not. able to fulfill this responsibility. But the biggest developers have been allowed to use their own balance sheets to back up those promises – a right that has not been a problem until recently. This is because the financial health of the country’s coal companies is failing, potentially exposing taxpayers to the risk of paying the costs of reclamation.

And that’s no small sum: nearly $ 2.7 billion of auto bonds are in circulation.

Alpha Natural Resources
, Arch Coal, Cloud Peak Energy and

Peabody Energy
, says taxpayers for common sense. In total, the United States has worked to clean up more than 500,000 acres that had been abandoned before the surety law came into effect in 1977, at a potential cumulative cost of $ 12 billion.

“In short, if the coal company goes bankrupt, state or federal governments – that is, we the people – may have to pay to clean up the mess from the company,” writes Clark Williams-Derry of sightline.org .

It wasn’t until 1977 that the US Congress passed laws signed by the president to restore mine sites and post a bond. The purpose of the so-called Surface Mining Control and Reclamation Act is not only to ensure that mine sites are cleaned up, but also to ensure that taxpayers do not end up with the invoice. Already, $ 8 billion has been spent to reclaim abandoned mine sites and an additional $ 4 billion is needed for pre-1977 sites, according to the taxpayer group.

It is therefore up to the Office of Surface Mine Recovery and Enforcement to oversee the process. As such, the agency is now revising its policy of allowing large conglomerates to self-stick in light of their financial difficulties. In other words, the original value of their assets is far greater than what they could get in today’s markets – a value that supports historically low prices for the coal used to make coal. electricity and for the coal used to make steel. This is in addition to the fact that natural gas is taking market share from coal in the electricity generation markets.

To continue this practice of self-sticking, parent companies in difficulty use the balance sheets of their healthier subsidiaries. Reuters reports specifically cited Arch Coal and Peabody Energy, specifically their surface mining sites in Wyoming and Montana which are part of the Powder River Basin and provide 40 percent of the country’s coal.

The problem, of course, is that Arch has said he might file for bankruptcy to give him time to reorganize while Peabody might not be far behind. A judge would then give priority to each request. On a phone call with Peabody, he says he’s writing a detailed analysis of this situation.

“Peabody and our operating subsidiaries remain in full compliance with state and federal requirements governing bonding requirements, and all of our mines in states where Peabody has self-bonding were reaffirmed for eligibility in 2015,” said the company in an official statement. “We pride ourselves on our track record of high quality reclamation and believe the standards that govern bonding are appropriate and have led to positive results. “

Obviously, purchasing an insurance policy to cover bankruptcy reclamation costs is money that would otherwise go towards producing and paying workers’ wages. However, the inability to pay such restoration costs could fall on everyone if companies are unable to do so. Otherwise there would be a big and ugly plague on the earth.

How real? “We cannot predict our ability to obtain these bonds or their cost in the future,” says Alpha Natural Resources, in a filing with the United States Securities and Exchange Commission. Wyoming, for example, said Alpha no longer qualifies for self-bond.

In addition, the wave of bankruptcies that hit the coal sector has already caused some major producers to default on their obligations to pay bondholders: Alpha Natural Resources, Patriot Coal and Walter Energy. Arch Coal and Peabody Energy both have a “reasonable probability of default,” says Fitch Ratings, Arch being the more likely of the two.

It is the job of state regulators to examine companies’ financial statements to determine whether they qualify for self-bonding, despite being bound by what federal law says. And until federal regulators – or the courts – decide otherwise, parents are using the financial data of their healthiest affiliates to back up their promises. The value of the assets is worth more than the cost of reclamation, they say.

For decades, the financial weight of coal has not been questioned. Now that fuel is out of favor with the market and regulation, however, much of the industry is forced to restructure, prompting regulators to reassess what companies can self-insure. While coal-producing states want economic development, they don’t want taxpayer bailouts.

About William J. Harris

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