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Peabody

Haul trucks transport coal at Peabody Energy’s North Antelope Rochelle Mine in the Powder River Basin in 2012.

Environmental groups in Wyoming continue to seek federal assistance to end the controversial practice of self-bonding, in which coal companies guarantee the cleanup costs of mining based on their financial health.

The issue comes to a head as the last of the three large coal companies to file for bankruptcy in Wyoming nears the end of its Chapter 11 proceedings.

Opponents of self-bonding say Peabody Energy, which operates the North Antelope Rochelle mine outside Gillette, should be ineligible to self-bond post-bankruptcy. As of September, Peabody had $727 million in cleanup liabilities in the state, some of which was self-bonded.

In an amendment to an earlier complaint filed with the Office of Surface Mining, Reclamation and Enforcement, land rights groups united under the Western Organization of Resource Councils recently argued that Peabody’s history of financial insolvency prohibits them from continuing the practice. The group also argues that it was unlawful for Wyoming’s Department of Environmental Quality to allow the company to continue operating with self-bonds while going through Chapter 11.

State regulators and coal companies disagree, as they did in two other cases of self-bonding and bankruptcy.

Peabody was the third coal company operating in Wyoming to seek Chapter 11 protection on April 13. Alpha Natural Resources and Arch Coal filed in the months prior. Both Arch and Alpha agreed to end self-bonding at their Wyoming mines, replacing a combined $662 million in cleanup liabilities with secure forms of insurance, when they exited bankruptcy.

The three coal companies came under financial pressure in the wake of diminishing Chinese demand for coal that in addition to competition from cheap natural gas, left companies saddled with debt in a market of rock-bottom prices.

Self-bonding effectively works as a promise that based on the strength of the company’s financial position, the reclamation obligations are covered.

State regulators argue they’ve taken a common sense, and lawful, approach to self-bonds over the last year. Each of the bankrupt companies were given a stay on the issue of self-bonding while going through Chapter 11. The alternative would have been to shut down mining operations, an option that would have put Wyoming jobs and state revenue at risk, said DEQ spokesman Keith Guille.

Wyoming does not have reclamation laws tailored to situations in which a company falls into bankruptcy, Guille said.

In that sense, the issue is dealt with on a case-by-case basis, he said. Each of the bankruptcies have unique components, he said.

It is true that a company with a weak financial position becomes ineligible for self-bonding, he added. In the case of Alpha Natural Resources, the company had been issued a notice that it would need to replace its self-bonds due to its financial insecurity last summer. Within 90 days of that notice, the company filed for Chapter 11.

As part of its emergence plan, Alpha formed a new company owned by the firm’s senior lenders, Contura Energy. Under Wyoming law, a newly formed company is ineligible for self-bonding until it has operated for five years, Guille said.

However, in the case of Alpha, the company argued early in its bankruptcy that replacing its self-bonds would put undue financial constraints on the company as it attempted to exit bankruptcy.

That argument was not convincing to some.

A federal agency refused to transfer Alpha’s federal coal leases until it presented a more secured approach to cleanup obligations. As members of the environmental community had hoped, Alpha appeared to have set a precedent. Arch followed suit when it emerged from bankruptcy Wednesday, replacing almost $400 million in self bonds with third-party insurance.

Cloud Peak Energy, which owns the Antelope and Cordero Rojo mines in Campbell County, never accrued the debt that other companies garnered on bad market bets. Though it avoided bankruptcy, Cloud Peak has promised to replace its self-bonds voluntarily.

Peabody has yet to make such a deal but maintains that it will pay all of its cleanup costs.

In response to the resource councils complaints, Peabody cited a variety of assurances in addition to its self-bonds.

The company’s position hasn’t changed since earlier arguments on the issue, said Beth Sutton, spokesman for Peabody.

Over the summer, Peabody reached a deal with four states where it has self-bonds, including Wyoming. For the duration of the bankruptcy, those states are first in line to recieve cash compensation for clean-up liabilities in front of other lenders.

However, the company’s bankruptcy loan provides a limited amount of cash for potential cleanup costs across three states. The resource councils ask that the company secure financing for the total amount of Peabody’s reclamation obligations.

Companies like Peabody argue that reclamation is not a single event that comes at the end of mining but an ongoing operation. The company continually meets its cleanup responsibilities in Wyoming and elsewhere, the company said in a statement.

Given that Peabody’s final restructuring plan is incomplete, Wyoming regulators cannot speak to what kind of bonding situation the company will have when it exits Chapter 11, said Guille, the spokesman for Wyoming’s Department of Environmental Quality.

The Resource Council’s argument that Wyoming failed to address Peabody’s ineligibility for self-bonding prior to bankruptcy is false, he said.

Regulators were in the process of reviewing Peabody’s financial situation, based on audited year-end reports, prior to the company’s filing.

Meanwhile, federal regulators have placed pressure on states to be more conscientious in allowing for self-bonding through a series of comments and decisions. Although by federal law Wyoming and other states with control over their mining regulations are allowed to issue self-bonds at their own discretion, it appears the federal office is taking a less than favorable approach to the practice.

The federal agency has initiated a rule-making process that may severely limit the availability of self-bonding. It also issued a policy suggestion that states offer less self-bonding opportunities in response to a tenuous coal market, future environmental restrictions and the recent bankruptcies.

Wyoming maintains its right to self-bond in some cases and has appealed a federal conclusion that in the case of Alpha, the state broke its own laws allowing the company to self-bond during Chapter 11.

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Follow energy reporter Heather Richards on Twitter @hroxaner

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