A new investigation has found that the world’s largest private-sector coal company does not have adequate funds or insurance to clean up its own mining operations, increasing the risk that taxpayers will have to pay billions of dollars to clean up toxic coal mine sites across the country.
Reuters reported last week that St. Louis-based Peabody Energy is “under scrutiny” from the federal government over concerns that the company is violating federal bonding regulations that are intended to guarantee that if a mining company goes bankrupt, it has sufficient insurance to pay to clean up its own mines. Instead of paying a third party for cleanup insurance, Peabody Energy has sought to comply with federal and state rules by promising regulators that it has sufficient financial resources on hand to pay for any cleanup costs — a practice known as self-bonding.
A review of securities filings by Reuters, however, found that at the end of 2014, Peabody’s assets were insufficient to meet federal and state self-bonding requirements. According to Reuters, “slumping coal prices and declining demand have put [coal] industry balance sheets under stress,” raising serious questions about whether Peabody and its competitors can continue to insure their own operations. In 2014, Peabody posted more than $700 million in losses.
“One of the key elements of (federal mining law) is to hold mine operators responsible and avoid taxpayers being saddled with the bill,” Greg Conrad, director of the Interstate Mining Compact Commission, an independent agency representing state coal programs, told Reuters in April.
Peabody, which operates the largest coal mine in the United States, is one of the five largest coal companies operating on the Powder River Basin in Wyoming and Montana. The basin provides more than 40 percent of the country’s coal. Coal in this region is primarily mined in strip mines, a type of surface mining which leaves an open pit with coal exposed, requiring extensive cleanup by companies once mining is completed. Companies are required to replant vegetation, restore topsoil “to match the original topography,” and rebuild the original surface ecosystem.
With their own finances deteriorating, Peabody and other coal companies are now using subsidiary companies to supply the insurance needed to meet the bonding requirements, though it is not clear why the finances of the subsidiary companies are more stable than those of the parent companies. Regulators in Colorado, Illinois, Wyoming, Indiana, and New Mexico denied Reuters’ request to review the financial records of Peabody Investment Corporation, which is the subsidiary that Peabody is using in several states to meet its bonding requirements.
Although the use of subsidiaries to self-insure a company appears to be legal under current regulations, lawyers that Reuters consulted believe that the “language may have been meant to allow smaller coal companies to lean on the strength of their well-financed parent — but never the other way around.”
A Peabody spokesperson told Reuters that the company is following all regulations and its subsidiaries are in “full compliance with the various state and federal requirements.” However, if pushed to bankruptcy, Peabody would leave $1.38 billion in cleanup liabilities to the American taxpayer, according to the investigation.
The investigation also found that if the nation’s four largest coal companies — Peabody, Alpha Natural Resources, Arch Coal Inc and Cloud Peak Energy — were to file for bankruptcy, they would leave behind $2.7 billion in cleanup costs and no insurance to shield taxpayers from this liability.
The scrutiny of Peabody comes on the heels of Alpha Natural Resources losing the right to self-insure in Wyoming just last week because it no longer had enough cash on hand to cover cleanup costs. Reuters also found that in 2014 that Arch Coal failed to meet the financial requirements to be eligible to self-insure.
In addition to the serious concerns about avoiding insurance obligations and costs, recent investigations have shown that coal companies operating on public lands in Wyoming and Montana are using their subsidiary companies to intentionally dodge payments owed to taxpayers from mining publicly owned coal.
The Department of the Interior’s Office of Surface Mining and Reclamation and Enforcement is currently examining “all aspects” of the coal companies’ insurance practices.
According to the Office of Surface Mining Reclamation and Enforcement’s Abandoned Mine Land Reclamation Program, “despite remarkable achievements, more than $4 billion worth of High Priority health and safety coal-related abandoned sites remain,” and “millions of Americans live less than a mile from abandoned coal mines.”
Claire Moser is the Research and Advocacy Associate with the Public Lands Project at the Center for American Progress. You can follow her on Twitter at @Claire_Moser. Nicole Gentile is the Director of Campaigns with the Public Lands Project at the Center for American Progress. You can follow her on Twitter at @nicolegentile.