State regulators lowered Peabody Energy’s reclamation costs by $138 million shortly before the coal giant filed for bankruptcy protection in early April.
Wyoming authorities framed the decision as a more accurate portrayal of Peabody’s cleanup bill, one that accounts for lower diesel prices and the mining firm’s existing equipment.
But the decision has prompted concerns from environmentalists who worry the state is relaxing reclamation standards to aid financially battered coal companies.
“We see it as part of a trend, a conversation that is happening, which is basically making excuses for these companies,” said Shannon Anderson, a lawyer at the Powder River Basin Resource Council, a Sheridan-based landowners group.
In all, state regulators lowered Peabody’s self-bonding total from almost $867 million to nearly $728 million prior to April 13, the date the company filed for bankruptcy.
Peabody applied for the change earlier in the year, and state regulators accepted public comment on the proposal before implementing the change.
The decision reflects coal’s new reality, said Kyle Wendtland, who oversees the Department of Environmental Quality’s Land Quality Division.
Mining firms and regulators paid less attention to estimated cleanup costs during the coal industry’s boom days, he said.
“Now that this market has become tighter, accurately defining that liability has become more important,” Wendtland said. “We’re just taking a much harder look at that, and for good reason.”
The lower cleanup estimate for Peabody’s four Wyoming mines is based on two factors: lower diesel prices and a new shovel sharing policy.
Heavy haul trucks and bulldozers use vast quantities of diesel fuel in reclamation operations. A drop in diesel prices resulted in a $91 million reduction of Peabody’s reclamation bill.
But the new shovel sharing policy, which lowered Peabody’s cleanup tab by $47 million, is perhaps more controversial.
When regulators calculate a company’s reclamation bill, they essentially estimate what it would cost the state if it had to pay for the cleanup itself.
Included in that estimate is the cost of purchasing a new shovel at each mine. The massive earth moving machines generally sell new for around $24 million, Wendtland said.
But if Wyoming had to reclaim Peabody’s mines, it is unlikely the state would buy a new shovel for each facility, Wendtland said.
In Peabody’s case, regulators implemented the new shovel share policy at the company’s Caballo and Rawhide mines. Caballo’s self-bond included the price of a new shovel. Rawhide’s bond included the cost of moving and reassembling the Caballo shovel.
The shovel share policy ultimately saved the company $22.6 million at Caballo and Rawhide. It was also applied to Peabody’s North Antelope Rochelle and School Creek mines, where it saved $24.5 million.
“That is much more fiscally responsible use of the equipment,” Wendtland said, noting the shovel share policy could be used only by companies that have multiple mines in Wyoming.
The change would require mines to rotate through the varying stages of reclamation, he said. A bulldozer would work at one mine to reduce the size of mining benches, while pits would be filled in with a shovel at a second mine, Wendtland said. The two mines would then switch.
Anderson, the Powder River Basin Resource Council attorney, questioned the change.
“If this is the fiscally responsible thing to do, why haven’t we done it until now?” she said. “It is a fairly substantial change to the bonding program after doing it the same way after all these years.”
Under federal law, mining firms are allowed to pledge their assets as a guarantee on future cleanup costs — provided they can pass a financial stress test. The U.S. Office of Surface Mining, Reclamation and Enforcement has ultimate authority over mine reclamation, but Wyoming is responsible for implementing oversight of cleanup operations.
For coal companies, the consequences of losing self-bonding status are particularly high. Those that lose the designation are required to obtain guaranteed financing like surety bonds, cash or letters of credit.
A reclamation bond, be it a self-bond or another form of financing, is required to maintain a mining permit.
Amy Schwetz, a Peabody executive, explained the importance of maintaining reclamation bonds in a bankruptcy filing earlier this month.
“If any surety bonds lapse without renewal, or if the debtors (Peabody) are unable to self-bond or obtain new third-party surety bonds for certain purposes, the debtors could default on various obligations, which could severely disrupt the debtors’ operations and impair the debtors’ prospects for a successful reorganization,” she wrote.
There have been growing calls to reform the self-bonding program. Senate Democrats have become increasingly vocal, expressing concerns that taxpayers could be left with the bill for mine cleanup.
Federal regulators have questioned Wyoming officials’ oversight of Peabody, writing in February that the mining giant may not have met the standards needed to qualify for self-bonding.
Arch Coal and Peabody maintained their self-bonding status right up until the time each filed for bankruptcy.
Wyoming regulators initially revoked Alpha Natural Resources’ self-bonding status before agreeing to a deal that secured 15 percent of the Virginia-based mining firm’s $411 million reclamation tab.
Wyoming officials, for their part, have defended their oversight of the program. Wendtland, in a letter to federal officials, noted that Peabody’s self-bonds were guaranteed by a subsidiary — a practice allowed under federal regulations.
But there are indications that companies are moving away from the self-bonding program.
Executives at Cloud Peak Energy noted in a call this week with financial analysts that they are in talks to secure the company’s $190 million in self-bonds.
“We are proactively working to address the ongoing regulatory uncertainties regarding self-bonding programs by seeking to voluntarily transition fully to third-party surety bonds,” Cloud Peak Energy Chief Financial Officer Heath Hill told analysts.
And in Colorado, state regulators are moving to transition coal mines away from self-bonds. Peabody Energy converted $27 million in self-bonds to surety bonds at regulators’ request. Colorado officials are also seeking to transition Tri-State Generation and Transmission Association’s mines away from $80.5 million in self-bonds.
Yet the bond amounts in those cases are comparatively small to those found in Wyoming. Alpha, Arch and Peabody have a combined $1.6 billion in self-bonds.
Wyoming regulators are reviewing the state’s bonding policies as part of Gov. Matt Mead’s energy strategy. But they have shown little indication of moving away from the program.
“The thing you have to remember there is OSM will play a role in that,” Wendtland said, when asked if the state would transition away from self-bonding. “The thing we don’t want to do is change our rules, and then have OSM change theirs.”
Peabody, meanwhile, is unlikely to be the last company to apply for a reduction in its self-bonds. Arch, Alpha and Cloud Peak are all expected to make similar requests, Wendtland said.
