Bond, Self-Bond

Weekly Wastebasket, CoalBond, Self-BondSelf-Bonding Puts Taxpayers in a Bind

A story you may have missed this week about Wyoming coal is a reminder that the energy sector is rapidly changing, that taxpayers face huge liabilities as a result, and that there are common sense policy changes that can really help mitigate the financial risk.

On Tuesday, the Wyoming Environmental Quality Council, comprising seven members appointed by a Republican governor and confirmed by the Republican-controlled Wyoming Senate, voted to approve changes to tighten their rules for accepting “self-bonds” from coal companies as a way to cover future cleanup costs. Not exactly thrilling, we know, but it’s a good example of what protecting taxpayers looks like in practice.

TRUST US ON SELF-BONDING

Some back story. Federal law requires any coal mine operator to cleanup, or “reclaim,” the landscape to its original functionality once mining ends. To make sure that happens, operators are required to submit a reclamation plan before they can break ground on the mine and put up some sort of financial guarantee they’ll be able to pay for it. Among three different types of guarantees, the 1977 law allows coal operators to qualify for something called “self-bonding,” instead of putting down any collateral or third-party guarantee. It’s the federal government accepting “trust us” as a guarantee.

In case you haven’t heard, the coal industry hasn’t been in the best financial shape in the last decade. Its deterioration was put on full display in late 2015 and 2016 when three of the top four U.S. coal producers filed for bankruptcy: Peabody Coal, Arch Coal, and Alpha Natural Resources. The crash of these titans, which produced a combined 377 million tons of coal in 2015, or 42 percent of the U.S. total, also revealed enormous liabilities for taxpayers arising from the self-bonding loophole in reclamation rules.

It turns out that in many cases coal companies are in fact not good for it. And who is left holding the bag when they come up short, or go bankrupt, abandoning their messy, toxic mines? Yup, all of us. Because when a company skirts cleanup obligations on federal lands, taxpayers living both near and far from coal country are the ones stuck with the tab.

Well, how much could cleaning up a coal mine really cost? To give you an idea, when those three coal companies went bankrupt, they carried a combined $2.5 billion in self-bonds for reclamation liabilities. In bankruptcy court, the federal regulator – or the state regulatory authorities they’ve delegated to – were left scrambling to collect on those bonds alongside the companies’ other creditors. But the liabilities don’t end with that settlement. The Government Accountability Office (GAO) recently reported that $1.2 billion in reclamation liabilities across the country are still covered by self-bonds owed to federal taxpayers.

COMMON SENSE NEEDED

In the immediate aftermath of the bankruptcies, the federal Office of Surface Mining and Reclamation Enforcement (OSMRE) smartened up to the problem, issuing a policy advisory in August 2016 to the state agencies with delegated authority suggesting that they stop accepting self-bonds. And just days later, OSMRE announced it was initiating a formal rulemaking on the topic. Given the deeply flawed nature of self-bonding, we had more than a few ideas for them that we submitted in our formal comments.

Unfortunately for taxpayers, the rule never came. In October 2017, the Trump Administration stated it was reconsidering the need for the rule. It also quietly rescinded the August 2016 Policy Advisory to states recommending an end to the practice of self-bonding. It’s like the new administration thinks the problem magically disappeared.

Well, the state of Wyoming begs to differ.

Their new rules make smart changes to which corporate entity’s finances can be used to self-bond, and place limits on what portion of liabilities self-bonds can cover. These concrete steps add common sense protections for taxpayers in a state that wholly supports the coal industry.

Now it’s time the Trump Administration re-ups its commitment to ending the risky practice of self-bonding. As Wyoming has shown, supporting the domestic energy economy doesn’t have to mean shirking responsibilities to local communities, and state and federal taxpayers.

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