Feds to strengthen coal 'self-bonding' rule

James Fenton
Entrance portals for the San Juan Mine are visible on Jan. 13 as seen from a service road at the mine in Waterflow

FARMINGTON — If a 39-year-old rule is updated, coal companies will have to prove they have the money to cover the costs of restoring land disturbed in mining operations before any coal is pulled out of the ground.

The federal Office of Surface Mining, Reclamation, and Enforcement announced Aug. 16 its rule on "self-bonding" needed to be strengthened in the wake of coal companies going bankrupt and failing to uphold their promises to restore the land.

The Surface Mining Control and Reclamation Act of 1977, signed into law by Jimmy Carter, defines three types of bonds — corporate surety bonds, collateral bonds such as cash or certificates of deposit and self-bonds — that are intended to ensure the companies can pay for the needed reclamation process.

However, self-bonding is essentially a promise made by coal companies to do the work of reclaiming the land without actually having to put the money aside for it.

Jeremy Nichols — with WildEarth Guardians, the Santa Fe-based group that filed a petition to modify the rule with the federal regulatory office in March — said under existing laws, the financial health of subsidiary companies were considered but the parent company's financial records did not receive the same scrutiny. That, critics of the law say, allows companies to sidestep their financial responsibilities for cleanup.

"A company with records of financial solvency (shouldn't) go bankrupt, but that's what's happening right now," Nichols said of the top three coal companies — Peabody, Arch and Alpha Natural Resources — that have declared Chapter 11 protections in the last year.

The group's petition asks the federal government to tighten its laws to ensure that when coal mines are reclaimed, the companies that mined the coal — not taxpayers — foot the bill.

"I don't want to be paying for the coal industry right now. It's a total indirect subsidy," he said. "These coal companies are playing these accounting games to avoid liability. This is rampant. The coal industry right now is hanging by a thread. They're trying to do everything possible to remain viable and they're just gaming the system."

And Office of Surface Mining, Reclamation and Enforcement Director Joe Pizarchik agreed.

In an Aug. 16 video published online, Pizarchik said existing regulations that allow self-bonding "do not work."

The office will now pursue the administrative rulemaking process to update and tighten the existing law on self-bonding. That was prompted, Pizarchik said, by the Guardian's' petition, the "increased market volatility of the coal industry," recent bankruptcies and public concern.

“The U.S. coal market is dramatically different from when our self-bonding regulations were last updated 30 years ago,” Pizarchik said. "This is a turbulent time of energy transformation in our country, of declining use of coal and increased use of cheaper natural gas and renewable energy. These conditions have exposed the limitations of the current self-bonding rule and we have a responsibility to protect the public’s interest by keeping up with these changes.”

By July 20, more than 117,000 comments — a majority in favor of a stronger rule — were received by the office during an extended public comment period on the Guardians’ petition, according to an Aug. 16 press release from the office.

When reached by phone Friday afternoon, Joe Micheletti — executive vice president of operations for Colorado-based Westmoreland Coal Co., the new owners of the San Juan Mine, an underground longwall mine 15 miles west of Farmington — declined to comment on the regulatory office, the rule or San Juan Mine until after the presidential election. He cited a blanket policy not to talk with the media that was recently instituted by the coal company's CEO, Kevin Paprzycki.

The mine was owned and operated by BHP Billiton New Mexico Coal until Feb. 1, when it was sold for about $127 million to Westmoreland San Juan, a subsidiary of Westmoreland Coal Co. PNM Resources, the parent company of the Public Service Company of New Mexico, financed a $125 million loan to Westmoreland so the company could buy the mine. The mine is the sole supplier for the San Juan Generating Station, which is operated by PNM.

In March, Westmoreland laid off as many as 85 workers at the Waterflow mine, citing the shut-down of two of the four power-generating units at generating station.

Navajo Mine, in nearby Fruitland, was also purchased with a loan.

The Navajo Transitional Energy Co. received a multi-million dollar loan from former Navajo Mine owners BHP Billiton to purchase the surface mine at the end of 2013.

Erny Zah, NTEC spokesman, declined to comment on the rule update.

"We are aware of the announcement by (the office) and will continue to watch the (rule-making) process for future developments," Zah said.

"In the coming days," the office will file a notice in the Federal Register to officially announce the intent to revamp the self-bonding rule, according to a press release from the regulatory office. No date had been announced as of Friday.

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621.