Hello all,

In the wake of the Arch Coal bankruptcy announcement today, I wanted to be sure everyone had seen this blog post by our very own Peter Morgan, with the Environmental Law Program, which explains the racket that is "self-bonding" by coal mining companies. It's a very concise, accessible summary of how we taxpayers may be left footing the bill for the mess these companies leave behind.

I always found this whole process rather confusing, and this post is one of the most clear explanations of how it works that I've come across, so I wanted to pass it along. We're lucky to have Peter and Aaron Isherwood navigating us through the murky world of coal company bankruptcies.

Mary Anne

http://www.sierraclub.org/planet/2016/01/big-coal-mining-companies-want-gamble-coal-market-using-your-money

January 6, 2016

Big Coal Mining Companies Want to Gamble on the Coal Market -- Using Your Money

By Peter Morgan

Berry Branch Mine, West Virginia. Photograph by Vivian Stockman, Ohio Valley Environmental Coalition.

The coal mining industry in the United States is undergoing a historic shift. Coal prices, and coal production, continue to decrease. Major mine operators, many of whom over-leveraged and took on massive debt when the coal market was at its peak just a few years ago, are being swept up in a wave of bankruptcies. Rather than give in to these market conditions and fold, some mine operators are seeking to reorganize and emerge from bankruptcy. How do they plan to do this? By underwriting their risky gambles with taxpayer money -- your money –- in the form of self-bonding.

One of the major contributors to the downward force pressing on the coal industry is the continuing oversupply of coal. A recent report from McKinsey consultants dubbed this phenomenon "zombie mines": mines that lose money, but that keep operating because it is too expensive to shut them down. But the cost of shuttering these mines isn't the only factor in play. Each of the major mine operators wants to be the last man standing. Some market for coal will persist in the U.S., and each company wants to secure the major share of that market.

But how can a bankrupt coal company hope to scrape together the funding necessary to emerge from their dire financial straits and gamble on future coal mining profits? Easy: they'll use your money. One of the most fundamental components of state and federal surface mining laws is the requirement that before coal removal can start, a mine operator must post a bond sufficient to cover the costs of reclaiming the site should it go out of business. That reclamation cost can be in the tens of millions of dollars for a single site. For big companies that hold a lot of permits –- like Alpha Natural Resources and Arch Coal –- the total reclamation obligation is in the hundreds of millions of dollars. So what does a mine operator do if it doesn't have hundreds of millions of dollars to secure those bonds? It convinces state regulators to let it off the hook from these reclamation bonding obligations by authorizing the use of "self-bonds" –-essentially an unenforceable promise from the company to the regulator that the company will complete reclamation. That means that if the company liquidates or abandons a mine site before it completes reclamation there will be no money left to pay for the cleanup. Instead, taxpayers –- you and me –- will shoulder that cost.

This exact scenario is playing out right now. In August, Alpha Natural Resources –- one of the largest coal producers in the country –- filed for Chapter 11 bankruptcy protection. Despite the significant decline of the coal industry and Alpha's plummeting stock value, state regulators in Wyoming and West Virginia had allowed Alpha to keep operating its mines under self-bonds. In Wyoming, Alpha's self-bonded reclamation liability is $411 million. In West Virginia, the self-bonded liability is $244 million. When the inevitable came to pass and Alpha filed for bankruptcy, state regulators opted to allow Alpha to keep operating under its now worthless self-bonds rather than require the company or its funders to provide substitute bonds. This means the state regulators are choosing to place the risk on the backs of their own citizens rather than on the company or the big banks currently propping it up.

Alpha and the state regulators claim that continued self-bonding is necessary only during the bankruptcy process itself and that Alpha will substitute those reclamation bonds when it emerges from bankruptcy. Neither Alpha, the regulators, or anyone else has made any attempt to explain where the bankrupt company will come up with the more than $650 million in funding that would be required to provide complete and secure reclamation bonds. Much more likely, and consistent with recent events, is that the regulators will allow Alpha to keep mining based on less-than-complete reclamation bonding. In other words, Alpha will be mining -– disturbing more land that will need to be reclaimed –- while taxpayers bear the risk of paying for that reclamation. Because Alpha will be operating in the current market of low coal prices and high production costs, the chance of further defaults and a return to bankruptcy are quite high. And when that happens, the company will be forced to liquidate its assets and will cease to exist. But Alpha need not worry about that: once it's time to pay for the reclamation, Alpha won't be around anymore. You and I will be the ones left holding the bill.

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Mary Anne Hitt Director, Beyond Coal Campaign Office: 304-876-7064  Cell: 540-239-0073  Twitter: @maryannehitt www.sierraclub.org

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