Name: Exposed: West Virginia and Other States Relying on ‘House of Cards’ to Pay for Coal Mine Cleanup
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Exposed: West Virginia and Other States Relying on ‘House of Cards’ to Pay for Coal Mine Cleanup

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For more than a century-and-a-half, the forests, streams, and hollows of the Appalachian Mountains have been scraped and gashed to unearth their heart of rich black coal. These lumps of hydrocarbons historically played a vital role in America’s electricity mix, accounting for a third of the country’s energy production as recently as&nbsp;2008.But over the past decade, a devastating combination of forces has pummeled the industry, from cheap natural gas and the falling cost of renewables to growing public pressure to respond to the climate crisis. coal production has dropped 40 percent since its peak 12 years ago, and the commodity accounted for only 14 percent of the country’s electricity generation last&nbsp;year.With the coronavirus pandemic now stalling energy demand, coal production has dropped about 26 percent in the past 12 months alone, perhaps ringing the death knell for coal as an energy source in&nbsp;America.The pandemic has even further depressed the use of energy, and oil prices have collapsed, making it even more difficult to compete,” said Ohio Coal Association president Mike Cope, who estimated a strong industry would need to provide a third of the country’s energy. “Nothing really to cheer about in the coal industry these&nbsp;days.”Hit with another wave of bankruptcies, King Coal is on its deathbed. But even as it fades away, the industry could land a final, painful blow to communities and the environment in&nbsp;Appalachia.An investigation by DeSmog has found that several key financial instruments meant to guarantee environmental cleanup have been pushed to the brink of insolvency, potentially leaving taxpayers on the hook for hundreds of millions — if not billions — of dollars in reclamation costs.Even as coal companies go bankrupt and walk away, a federal law passed in 1977 created an ostensibly fail-safe system to fund future cleanups: Mining companies put up millions of dollars in security deposits intended to pay for reclaiming individual mines. These funds, called bonds, usually come as surety policies, which are provided by insurance companies and guarantee a third party will fill pits, seal shafts, and mitigate water and air&nbsp;pollution.But DeSmog has found that the bonding system now faces dangerous levels of risk. The large insurance companies that once wrote surety policies are fleeing the industry, allowing a few insurance providers to take on much more liability than they can handle. If enough coal companies go under, it will set off a chain reaction, taking these insurance companies down with&nbsp;them.&nbsp;As a last line of defense to protect taxpayers, coal companies in six Appalachian and Midwestern states also pay into shared pots of money meant to backstop cleanup costs. But the amount of money companies are mandated to pay into these funds has been vastly under-calculated, and these bond pools are also facing&nbsp;insolvency.Bond pools are a vestige of “a different industry,” explained Matt Hepler, a Virginia-based organizer and scientist with Appalachian Voices, a nonprofit that advocates for communities and the environment in coal country. “They were designed when coal was booming. They were not designed to handle an industry-wide&nbsp;collapse.”Precarious bond pools, , and surety providers playing a risky game are a dangerous&nbsp;combination.It’s a house of cards,” Hepler&nbsp;said.&nbsp;As coal companies go bankrupt and production drops, under-capitalized companies are scavenging what’s left. In West Virginia, that’s the story of nursing home operator-turned-mining magnate Tom Clarke, who arrived on the scene after coal had already begun its free&nbsp;fall.The heart of Clarke’s plan was to from companies seeking to shed liability, such as bankrupt Patriot Coal in 2015, and sell the remaining coal to pay for environmental&nbsp;cleanup.From the beginning, he operated on a razor’s edge, with barely enough staff and cash. His companies were with state and federal environment&nbsp;laws.Earlier this year, a Clarke-run company called Environmental Fund . At its peak in 2015, had 217 full-time employees, a number that had dropped to 65 by last year, according to data from the Mine Safety and Health&nbsp;Administration.With ’s collapse, the Mountain State now faces the possibility of shouldering more than $100 million in cleanup&nbsp;costs.Clarke did not respond to multiple requests for&nbsp;comment.In late March, the West Virginia Department of Environmental Protection petitioned the courts to place into receivership, meaning a judge would appoint an agent to manage the failed&nbsp;company.A spokesperson for the department declined to&nbsp;comment.The have painted a picture of shirked responsibilities. Division of Mining and Reclamation Director Harold Ward stated in one document that “without immediate and decisive action” the mess left at ’s mines would “threaten imminent and identifiable harm to the environment and the public health and&nbsp;safety.”The Martinka mine, an site in northern West Virginia, represents that looming disaster. According to regulators, it costs nearly $900,000 annually to pump and treat polluted water draining from the mine. But was only sporadically maintaining its pumps. The deteriorating situation compelled West Virginia to step in earlier this year and begin paying for pump maintenance on behalf of , or else risk the system failing to contain the&nbsp;pollution.This would result in contaminated water discharging into the receiving stream that is the source of drinking water for thousands of West Virginians within a matter of weeks if not days,” Ward stated in the agency’s court filings, further warning that all the company’s mines in West Virginia could deteriorate to Martinka’s&nbsp;level.The state environment department “stands poised at the precipice” of having to wipe out ’s permits, tap into its bonds, and fall back on West Virginia’s bond pool, according to its court filings. This could result in “financially overwhelming the Special Reclamation Fund, the State’s principal backstop for all revoked and forfeited mine sites in West&nbsp;Virginia.”prepared by the state board overseeing West Virginia’s bond pool, the fund was worth $61.6 million, and a related fund focused on water pollution held $112.4&nbsp;million.It’s impossible to know exactly how much coal mine cleanup and water treatment will cost across West Virginia, although the state estimates that reclaiming its abandoned coal mines could come with a bill of $1.8 billion. This is on top of hundreds of millions, if not billions, of dollars in costs associated with active and recently closed mines, including those owned by .According to the board’s 2019 report, these funds were adequate to cover the projected cost of mine cleanup, and the state didn’t need to increase fees assessed on the industry to top up those pots of&nbsp;money.But regulators now admit that a single company’s demise might wipe out the entire bond&nbsp;pool.The other five states with bond pools — Virginia, Kentucky, Ohio, Indiana, and Maryland — aren’t in much better&nbsp;shape.It seems like each state right now has its own actor that is jeopardizing its bond pool in Appalachia,” Hepler&nbsp;said.West Virginia Gov. Jim Justice and his family own companies that hold 39 coal mine permits in Virginia, most sitting idle and pockmarking ridges along the border with Kentucky. They’ve racked up for regulatory noncompliance ranging from water pollution to insufficient monitoring, according to documents provided by the state’s Department of Mines, Minerals, and&nbsp;Energy.While the fund has about $10 million backing cleanup at more than 43,000 acres of disturbed land, found that mines belonging to one of the Justice family’s companies would cost $134 million to reclaim, a sum almost entirely guaranteed by the bond pool. found that this dollar figure had likely dropped but still left the pool backing more than $100 million. Justice’s spokespeople did not respond to requests for&nbsp;comment.In Kentucky, the bankruptcy of two companies formerly run by coal baron Jeff Hoops, Blackjewel and Revelation Energy — ’s “No pay, we stay!” protests — threaten the state’s roughly $50 million bond&nbsp;pool.In January and February, the Kentucky Cabinet of Energy and Environment wrote to the bankruptcy court, alleging that the companies flouted their cleanup duties Analyzing just 20 percent of the firms’ permits, the state found that their bonds combined would be $38 million short of covering reclamation even on that&nbsp;fraction.Phone numbers associated with Hoops, Blackjewel, and Revelation Energy have been disconnected, and the bankruptcy attorney for the companies didn’t respond to requests for&nbsp;comment.Josh Macey, a Cornell Law School assistant professor who has researched coal bankruptcies, said mine bosses who are willing to take on liabilities and be hit with myriad violations represent the latter days of a dying industry. “It’s almost a misnomer to call the things they have ‘assets,’” he said, “because that suggests that they have&nbsp;value.”If companies go bankrupt, they won’t immediately saddle taxpayers with the full value of their cleanup costs because remaining profitable assets would be sold. But if even a fraction of the cleanup bill lands with the state, it will drown these bond pools, DeSmog’s analysis of state records&nbsp;found.In Ohio, the state’s worst-case projections are already becoming&nbsp;reality.For years, state-commissioned reports have shown that it would take more than 150 years to build up enough financial reserves to handle its largest mining company going belly-up. That operator, Murray Energy, is already in bankruptcy protection, with more than $200 million in environmental liabilities backed by the fund. An attorney for Murray Energy declined to&nbsp;comment.Ohio’s bond pool guarantees about $545 million in coal mine cleanup costs, according to a 2019 actuarial report, but is only worth $22.2&nbsp;million.It’s a self-fulfilling prophecy,” said Cope from the Ohio Coal Association. “As there’s less coal mined, there’s less money to put into these funds. If there’s a catastrophic bankruptcy, the fund will not be able to handle&nbsp;it.”One state west, Indiana regulators failed — in 2017 and again in 2018 — in their attempts to raise fees on active coal companies to mitigate their bond pool’s financial shortfall. As of December, Indiana’s fund sat around $1.4 million, only 7 percent of the roughly $19.1 million worth of cleanup costs it&nbsp;backs.In Maryland, a failing company handed its mines to the state, causing the bond pool to plummet from about $725,000 in 2018 to below $100,000 now. Jay Apperson, spokesperson for the state’s Department of the Environment, said that because the state’s per-acre bonding rates are among the highest in the region, it is less reliant on its bond pool to fund&nbsp;cleanups.The 1977 law governing coal mining leaves ultimate authority with federal regulators, however. A spokesperson from the Office of Surface Mining Reclamation and Enforcement, or — the federal coal regulator — said the agency “is aware of the current financial difficulties,” but declined to answer any questions about its own inaction on the&nbsp;issue.The insurance companies that back coal mine surety bonds have taken on more liability than they can handle, said Bob Mooney, who spent two decades as a coal regulator with both and the state of&nbsp;Ohio.The bonds are sort of immaterial because a lot of the surety companies will go under,” he said. “So, even though there’s a bond, there’s&nbsp;not.”In rare cases over the past several decades, surety providers themselves have gone bankrupt, throwing turmoil into the&nbsp;system.But the use of surety bonds has increased in recent years. A 2018 report from the, the investigative arm of Congress,the more than $10 billion in coal cleanup bonds are held as&nbsp;sureties.Over the past five years, that liability has been dangerously consolidated in an ever-shrinking number of insurance companies. Fewer than a half-dozen insurers now actively issue surety policies, according to Macey and others within the surety&nbsp;industry.Given how few surety companies remain active, there’s obviously a risk that they’re not financially capable of performing,” Macey&nbsp;said.That potential has become a reality, according to a surety broker who has worked with the coal industry for years and requested anonymity to speak candidly about contracts between coal mining companies and surety providers. The broker explained that major insurance companies, such as Zurich Insurance Group and Travelers Casualty and Surety Company of America, are extracting themselves from the coal surety&nbsp;market.Walking away is an easy decision for large insurance providers, the broker said, because these bonds represent only a small percentage of their business. While the law doesn’t allow insurers to simply cancel surety policies, some companies now ask for high levels of collateral from coal companies to properly reflect the&nbsp;risk.They don’t win business on their rates,” the broker said of how insurance companies attract mining clients. “They win business by the amount of collateral they&nbsp;require.”This incentive system helped create a race to the bottom, with smaller insurance firms gobbling up large amounts of coal business. Insurance providers make quick money on premiums but, if faced with their coal customers going under, they may topple in a manner similar to the failure of the subprime mortgage bundles that helped kick off the 2008&nbsp;recession.Indemnity National Insurance Company is the poster child for this&nbsp;system.The firm accepts high levels of liability from risky coal miners, including in the case in West Virginia. State officials said that if they tried to use the company’s sureties for cleanup, which is how the system is meant to work, the move could end up “potentially bankrupting the Defendant’s principal surety,”&nbsp;Indemnity.from Financial, Indemnity’s parent company, described as a mining-focused reinsurer that “has identified a unique opportunity to build a low-risk environmental surety business in an industry perceived to be&nbsp;high-risk.”But their risk is far from&nbsp;low.Indemnity backs about $125 million in surety bonds for , as well as $400 million worth of policies with companies currently or formerly associated with Hoops, the Kentucky coal magnate. This is according to data from West Virginia, Kentucky, and Virginia regulators, gathered in recent months by the Appalachian Citizens’ Law Center and Appalachian Voices and shared with&nbsp;DeSmog.Indemnity guarantees more than $900 million in coal surety bonds for 38 companies across the three&nbsp;states.If Indemnity National goes in the tank — with the number of bonds they have with these other companies — these other companies are not going to be able to replace them. They’re just not,” the surety broker&nbsp;said.That worst-case scenario would push the coal industry into unprecedented territory and would leave hundreds of millions of dollars in cleanup liability&nbsp;unprotected.The bonding companies were never making an assessment of what their risk was,” said Pat McGinley, a West Virginia University law professor with more than 40 years’ experience dealing with the coal industry. “So, they were backing bonds far beyond their ability to pay if there was a&nbsp;bankruptcy.”&nbsp;Representatives of Indemnity and its associated entities — Cumberland Surety and Financial, , an offshore tax haven — did not respond to calls and emails requesting&nbsp;comment.The fall of in West Virginia has helped expose a potential surety bubble, but warning signs were laid at the feet of state and federal regulators years&nbsp;ago.When an insurance provider called Frontier Insurance Company lost its listing with the Treasury in 2000, and regulators had to scramble to find other providers to pick up its surety&nbsp;policies.Ten years later, Travelers, a large surety provider, wrote to , telling the agency that severely insufficient bonds spelled trouble for surety providers and states. “They also pose a risk to those state programs with bond pools with the possibility of draining or even bankrupting state bond pools in the event of default,” the company&nbsp;wrote.By 2013, staff at seemed to have gotten the message loud and clear, that there was already aRegulators still have the legal authority to demand that coal companies fork over adequate bonds and that insurance companies only accept risk they can handle. But further stressing the remnants of the coal industry could push more companies into bankruptcy, making it even more likely that no one will properly clean up and shut down these&nbsp;mines.Who pays? The damaged environment? The communities that are blighted by unreclaimed mine sites?” McGinley said. “It’s the end of the road, so where’s the money coming from? This was all&nbsp;foreseeable.”Stay up to date with DeSmog news and alertsMark Olalde reports on and photographs heavy industries in the and abroad, and his investigations have appeared in the Los Angeles Times, High Country News, the Center for Public Integrity, Today, and&nbsp;elsewhere.The labelling will "deceive or confuse" consumers, say experts.The labelling will "deceive or confuse" consumers, say experts.The federal government has broad authority to take action to slash greenhouse gas emissions, according to a new report, including transforming an oft-forgotten Southeast public power corporation into a force for clean energy.The federal government has broad authority to take action to slash greenhouse gas emissions, according to a new report, including transforming an oft-forgotten Southeast public power corporation into a force for clean energy.Green MP Caroline Lucas said climate sceptics and “delayers” should be “nowhere near the prime minister’s top team”.Green MP Caroline Lucas said climate sceptics and “delayers” should be “nowhere near the prime minister’s top team”.Graham Stuart MP has championed the UK’s highly polluting wood-pellet burning power station, which is located close to his Yorkshire constituency.Graham Stuart MP has championed the UK’s highly polluting wood-pellet burning power station, which is located close to his Yorkshire constituency.Series:Series:Clearing the PR PollutionSectionsDatabasesTopicsDeSmogFollowClearing the PR PollutionSectionsDatabasesTopicsDeSmogFollowWebsite byStay up to date with DeSmog news and alertsResultsSee all resultsStay up to date with DeSmog news and alerts

For more than a century-and-a-half, the forests, streams, and hollows of the Appalachian Mountains have been scraped and gashed to unearth their heart of rich black coal. These lumps of hydrocarbons historically played a vital role in America’s electricity mix, accounting for a third of the country’s energy production as recently as&nbsp;2008.But over the past decade, a devastating combination of forces has pummeled the industry, from cheap natural gas and the falling cost of renewables to growing public pressure to respond to the climate crisis. coal production has dropped 40 percent since...

Exposed: West Virginia and Other States Relying on ‘House of Cards’ to Pay for Coal Mine Cleanup

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