West Virginia lawmakers and environmental regulators risk letting the state’s mining reclamation program slip into insolvency through gaping holes in statutory and permitting oversight, according to a new state legislative audit report.
The audit report presented to a joint panel of state senators and delegates Monday by the Post Audit Division calls on the state Legislature to commission a study to evaluate the state’s coal mining reclamation program.
The report finds that the state Department of Environmental Protection has failed to comply with state and federal law in its reclamation program oversight, resulting in missed opportunities to financially shore up a program that will keep requiring hundreds of millions of dollars to reclaim permit sites per federal regulations.
The state mining reclamation program has no known contingency plans if reclamation funds were to become insolvent, the 80-page report cautions.
“If the current funding sources for the program were to prove insufficient to meet the demands of reclamation, the resulting additional financial obligations could prove to be detrimental to the state’s budget,” the report warns in bold letters.
The report finds that the state’s current per acre coal mining reclamation bond limits may not be enough to guarantee the solvency of the state’s mining reclamation program.
Rising reclamation costs have devalued permit bonds since the current bonding limits were established by state code in 2001, the report observes, while the cost of reclamation has increased significantly.
Bonds are set between $1,000 and $5,000 per acre.
The Department of Environmental Protection admitted in a lawsuit that it filed in March 2020 in Kanawha County Circuit Court against ERP Environmental Fund Inc., a coal mining company, that assuming responsibility for reclaiming and remediating all of ERP’s mining sites could potentially overwhelm the state’s special reclamation fund both financially and administratively.
The department reported that the costs of reclaiming and remediating ERP’s sites totaled more than $230 million. ERP laid off all its employees and management as of March 2020 and ceased operations, leaving its mining sites abandoned and public health and safety threatened, according to the department’s lawsuit to appoint a special receiver to assume ERP’s responsibilities.
ERP acquired more than 100 mining permits following Patriot Coal Corp.’s bankruptcy in 2015.
The audit report recommends that the Department of Environmental Protection adjust bonding rates so that reclamation costs don’t become a “greater financial liability to the state.”
The department noted in a response to the audit’s findings included in the report that only the Legislature has the statutory authority to change bonding rates.
The report notes that unlike other states, West Virginia has a mining reclamation program that doesn’t have statutory limits on the amount of reclamation surety bond coverage a surety company may issue either in individual bonds or in an aggregate amount.
Five companies hold 91% of the state’s coal mining reclamation bonds, according to the report. Indemnity National Insurance Company holds 67% of the total alone at $620 million. Indemnity held $125 million in reclamation bonds for ERP when it ceased operations last year.
“Companies that are permitted to issue surety bonds without limitation expose the [special reclamation funds] to potentially large liabilities that could result in the insolvency of the funds if mass forfeitures were to occur,” the report states.
The report recommends that the Legislature impose maximum thresholds on the face value of reclamation bonds permitted to be underwritten by a single surety company. Such limits should include both single bond issuances plus the company’s aggregate issuances of reclamation bonds, the report suggests.
The audit report notes the Department of Environmental Protection does not require coal companies to maintain bonds equal to the estimated reclamation cost as required for permits listed as inactive.
If the 56 permits that do not have full cost bonding were to forfeit, it would cost an estimated $279 million to reclaim the sites, the auditors found.
The report recommends that the Department of Environmental Protection comply with state code in part by requiring mining permit holders submit reclamation bonds equal to the estimated reclamation costs for permit sites prior to granting extensions for inactive statuses.
The department accepts mining reclamation awards that can reduce the amount of bonding required to obtain coal mining permits. Auditors found that the decreased bond amounts could increase the state’s mine reclamation liability and potentially lead to the insolvency of the special reclamation fund.
State environmental regulators do not keep full records of various aspects of the reclamation awards program, making it impossible to determine bond reductions resulting from the program, according to auditors.
At least 52 companies have a total of $14.3 million in active coal mining performance bond reductions, and two companies with bond reductions have 41 forfeited permits for which reclamation costs exceeded $18.6 million as of August 2019, according to the report.
Auditors recommended that West Virginia environmental regulators comply with state code and develop a system to track and maintain a record of all reclamation awards submitted by coal companies.
The report advises the department to analyze the effect of accepting reclamation awards as a mechanism to reduce reclamation bonding and report the results of its analysis to the state Post Audits Subcommittee by Nov. 30.
In its response, the department disagreed that it fails to maintain a complete record of companies that have received reclamation awards resulting in bond reductions, attaching an inventory of its reclamation awards program.
But the department did not address the audit’s recommendation that it analyze the effect of accepting reclamation awards as a mechanism to reduce reclamation bonding.
The report also notes that 70 mining companies that filed coal reclamation tax returns had delinquent coal reclamation tax accounts totaling $5.3 million as of May 21.
Auditors recommended that the Department of Environmental Protection comply with its own reclamation permitting handbook and not approve applications for permit renewals and revisions or grant inactive statuses for companies found delinquent in paying special reclamation taxes.
West Virginia Senate President Craig Blair, R-Berkeley,responded to the report by recommending that legislators “repackage” it to try to attract federal funding.
“Otherwise, we’re looking at a billion-dollar program of our own to begin with,” Blair said.
Blair recalled meeting Sen. Joe Manchin, D-W.Va., and U.S. Department of Energy Secretary Jennifer Granholm during their stop in Morgantown last week and learning of federal plans to distribute $38 billion to communities impacted by a decline in fossil fuel energy development.
“As I said to her, displaced miners don’t need a lot of retraining to be able to go back in and do reclamation,” Blair said. “It’s a win-win scenario from that standpoint if we’ve got mines that are closing down.”