Energy

A piece of coal from Antelope Mine last month.

Josh Galemore, Star-Tribune

Wyoming regulators took a surprising step Tuesday, proposing changes to how coal companies secure the cost of cleaning up their massive mining operations in the state.

Two years ago, amidst a sharp decline in the coal market and a slate of bankruptcies, multiple groups were clamoring for state and federal regulators to end self-bonding for the insolvent companies. The too-big-to-fail firms had guaranteed clean-up costs with a financial fitness test. Then they had failed, with a combined $1.6 billion in cleanup costs unsecured.

The debate over self-bonding heated up during the bankruptcy proceedings, then fizzled as companies were obligated to replace self-bonds with more secure forms of insurance as part of their restructuring plans. But the question of self-bonding going forward was still unanswered.

The state’s proposed changes, released with little fan fair, don’t go so far as to end self-bonding, but they do make it harder to qualify.

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State regulators downplayed the influence that the bankruptcies had on their rule-making process. But the downturn did highlight some problems and outmoded practices for bonding rules that were largely written in the 1980s, a very different time for coal and for the financial markets, said Kyle Wendtland, land quality administrator for the Department of Environmental Quality.

The changes in the draft proposal, particularly on self-bonding, bring the rules into the modern era, he said.

“It’s not that we took a different stance on self-bonding,” he said. “It’s that we evaluated it in today’s market place and said this would be a way to make sure the state of Wyoming’s risks are addressed in moving forward.”

In short, the proposal revises its financial fitness test for companies that want to self-bond. Instead of offering income statements and balance sheets to prove they can self-bond, companies will be judged by their credit rating from financial firms Moody’s Investor Service, Standard and Poors or Fitch Ratings. It is a forward-looking assessment, whereas the current rules call for the state to look at how the company had been performing in the past.

The state is also proposing that a secondary company can’t be the guarantor for self-bonds, which is allowed right now. Either the company operating in the PRB or its parent company is on the hook. Even if a company has a strong credit rating, meanwhile, it can only self-bond up to 70 percent of its obligation, according to the proposed rule changes.

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Industry, lawmakers and conservation groups were given a heads up on the state’s plan to revise its bonding rules earlier this year, and most are at ease with the process so far.

A spokeswoman for the largest coal company in the state, Peabody Energy, had not examined the state proposal by press time. She deferred comment to the Wyoming Mining Association.

The company has fully replaced its self-bonds in Wyoming with more conventional insurance options. But in the March announcement when the company said it would replace its $728 million reclamation obligations with insurance, Peabody CEO Glenn Kellow said self-bonding was not out of the question at a future date.

Is limited self-bonding a part of the new normal for coal? Travis Deti, executive director of the Wyoming Mining Association doesn’t think so. He defended Wyoming companies’ reclamation accomplishments during the bankruptcies and financial downturn.

But the coal sector’s very bad year did raise some valid concerns for the state, and an update to the rules is a fair approach, Deti said.

“The DEQ has a responsibility to protect the state, and our operators respect that,” he said. “We are going to work with the public process to craft a rule that works.”

Wyoming regulators were under pressure during the downturn and criticized for not acting quickly on self-bonding. Companies reached deals with the state to continue operating without secured bonds until they had finished their bankruptcies. Wentdlandt defended his agency’s choice.

“Certainly there were challenges for this agency and the state,” he said. “I think we’ve proved that it was the correct way.”

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The proposed rule changes are seen as a favorable compromise for conservation groups, though ideally the state would simply end self-bonding, said Connie Wilbert, chairwoman of Wyoming’s Sierra Club.

“We just don’t think that it is appropriate,” Wilbert said, noting that if a company could not afford traditional insurance, they shouldn’t be in the business.

The proposals show that Wyoming has learned a lesson from the downturn in the coal sector, when companies with self-bonds to the tune of millions of dollars were in financial freefall, she said.

“I think last year was a real wake up call,” she added.

The tremendous financial pressure of the downturn is off, but long term health in the coal sector is uncertain at best, and Wyoming is proposing to be more careful about how companies secure reclamation costs.

The draft changes will go before the Land Quality Advisory board at a meeting in Gillette on Dec. 6, before the state invites official public comment.

Follow energy reporter Heather Richards on Twitter @hroxaner

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Heather Richards writes about energy and the environment. A native of the Blue Ridge Mountains in Virginia, she moved to Wyoming in 2015 to cover natural resources and government in Buffalo. Heather joined the Star Tribune later that year.

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