DEQ needs to close self-bonding loopholes

Last month a completely unknown and unproven company called Blackjewel, LLC “bought” two of Wyoming’s oldest and biggest coal mines. More precisely, they were given the mines in exchange for assuming their cleanup risks and some hypothetical future royalties. They acquired the Eagle Butte and Belle Ayr mines near Gillette from another new and unproven company called Contura Energy, spawned just last year when Alpha Natural Resources went through bankruptcy and spun off what it called its “crown jewel” Wyoming assets. Now the crown jewels aren’t looking so shiny and Contura is unloading them at a loss because these mines are liabilities. Contura will concentrate on its metallurgical coal business in the East instead.

Hopefully, the one thing that should not be a problem going forward is bonding to assure clean up and reclamation of the mines. Thanks to a settlement agreement with the Department of Interior during Alpha’s bankruptcy, Contura wasn’t allowed to self-bond. Instead of continuing to hide, as Alpha had done, behind the chimera of a self-guarantee — really nothing more than an uncollectible IOU — Contura was forced to back Eagle Butte and Belle Ayr’s reclamation work with surety bonds and letters of credit from third-party financial institutions. Blackjewel should be required to do the same as a condition of the sale before the Department of Environmental Quality lets them take over the mine permits. This would insure there will be money available for reclamation jobs if Blackjewel were to walk away from its cleanup obligations while these bonds are still in effect.

The recent history of the Eagle Butte and Belle Ayr coal mines demonstrates one thing: their cleanup liabilities are nearly as high as (and possibly higher than) their value as operating mines. This loudly underscores that Wyoming regulators must not continue to allow self-bonding.

If uncertainties and a down market continue to plague the coal industry as economists nearly unanimously predict, self-bonds will remain worthless promises and Wyoming will pay the price. Unless Wyoming prohibits them now, the next time mines change hands and weaker and weaker mine owners go bankrupt, tax payers are sure to be left on the hook.

Self-bonding has no place in a regulatory scheme that was created to ensure the worst-case never happens. Taxpayers were never meant to be left holding the bag for hundreds of millions of dollars in reclamation work. America’s coal mining regulations were born in the late 1970s when abandoned and un-reclaimed mines were strewn across the country. Congress created an abandoned mine land fee to clean up past messes and required reclamation bonds to prevent future mines from being abandoned without reclamation. But the law also contained a loophole allowing states to accept self-bonds in the place of reliable third-party guarantees. Although Montana and other states showed the foresight to prohibit self-bonding, Wyoming became the number one user in the country of self-bonding IOUs. Three years ago when Alpha, Peabody Energy and Arch Coal all declared bankruptcy, there was more than $2.4 billion of reclamation work in our state not covered by collectible insurance.

With the lessons of these bankruptcies fresh in our memory, DEQ is considering an important step to update Wyoming’s reclamation bond rules. The update proposes to remove loopholes that allow companies to qualify for self-bonds when they really shouldn’t. DEQ’s proposed rules are an important change that would reduce risk to our citizens and our state treasury. Unfortunately, there will always be some risk from self-bonding until Wyoming totally eliminates the practice. As DEQ moves forward with their new rules, the agency needs to eliminate all self-bonding for all new coal mine permits and all permit renewals. Colorado has recently taken steps to limit self-bonding after the Peabody and Arch bankruptcies, and Wyoming should follow their example.

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Bankruptcy will likely continue to be part of the industry’s future as coal’s market share continues to decline. Like it or not, coal just can’t compete the way it once did because cheap natural gas is more abundant than ever, and renewable energy is getting less expensive every day. As this “new normal” plays out in Wyoming and across the nation, we need to make sure taxpayers are protected, mine reclamation is assured and reclamation jobs are available, no matter what happens to mine owners. I hope our DEQ is up to the challenge, and I hope their updated rules and practices truly achieve these goals. But we’ll see.

Bob LeResche is vice chair of the Powder River Basin Resource Council and a board member of the Western Organization of Resource Councils.  He is a former Commissioner of Natural Resources for the State of Alaska, Executive Director of the Alaska Energy Authority, investment banker and CEO. With his wife Carol he operates a ranch and organic heirloom vegetable farm near Clearmont, Wyoming.