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Environmental groups won a partial victory last week in their campaign to make sure Peabody Energy cleans up its coal mines, a growing concern as the company is going through Chapter 11 bankruptcy proceedings.
A federal bankruptcy judge found that the Environmental Law & Policy Center and the Western Office of Resource Councils can proceed in petitioning the federal Office of Surface Mining Reclamation and Enforcement (OSMRE) regarding Peabody’s use of “self-bonding” for eventual clean-up of its coal mines.
When a company is in bankruptcy, there is an “automatic stay” imposed on citizens pushing for enforcement of environmental laws, including the federal law governing coal mine reclamation. The groups had asked the bankruptcy court to be exempted from that stay on the self-bonding issue.
Peabody had strongly objected, but the judge ruled in the groups’ favor, deciding they can continue sending information to the federal enforcement office and demanding regulators take action to limit Peabody’s self-bonding.
The groups have been arguing that Peabody should have to put up real capital ahead of time or invest in an insurance policy or surety bonds to clean up mines, rather than be allowed to “self-bond,” or essentially promise that it will have enough money when the time comes.
As ELPC executive director Howard Learner sees it, bankruptcy judge Barry Schermer’s July 20 decision signals that the feds can enforce reclamation requirements on Peabody even as the company reorganizes in bankruptcy proceedings. And if federal regulators do not take action the environmental groups find sufficient, the ruling protects their right to sue the agency, Learner said.
“The question will be, where do Peabody’s mine reclamation and environmental cleanup responsibilities fall within the competing demands of creditors and vendors and Peabody’s plans for future,” as hashed out in bankruptcy proceedings, Learner said.
“The judge decided from the bench that we are parties of interest, so in the context of reorganization, we will be in a position before the court to assert that necessary funds be made available for mine reclamation and environmental cleanup…And as a practical matter, Judge Schermer has made clear that the mine reclamation and environmental clean-up responsibilities are on the court’s radar.”
Schermer upheld other parts of the stay, ruling that the environmental groups cannot challenge or interfere with Peabody’s permits or permit expansions.
Shannon Anderson, a staff attorney for the Powder River Basin Resource Council, Western Office of Resource Councils’ Wyoming affiliate, finds this highly frustrating.
“All that [Schermer’s decision] is doing is letting us give information to the agency [OSMRE] about the company’s violations of the law,” she said. “It’s something we should have an automatic right to do. It’s part and parcel of our strip mine law. [Schermer’s ruling] is a victory in the sense that we’re able to do something – but we’re still trying to figure out the extent and the limits of the order.
“We want to be very mindful of the bankruptcy proceeding. If we’re not, we could get sanctioned, and those consequences could be very severe for a little organization like ours.”
Peabody seeks protection
Before and since its April declaration of Chapter 11 bankruptcy, Peabody has repeatedly said that it meets the federal requirements for self-bonding. The company noted in bankruptcy filings that it has worked with lenders to set aside $200 million specifically for that purpose.
Meanwhile in its motion before Schermer, Peabody had essentially argued that since it is in bankruptcy proceedings, ELPC and WORC should not be able to file challenges regarding its operations.
In its filing, Peabody argued that the ELPC and WORC “actually urge [OSMRE] to use its regulatory powers to shut down the Debtors’ mining operations,” and that their citizen complaints amounted to trying to interfere with or take control of the company’s estate.
Peabody uses self-bonding for coal mines in Indiana, Illinois, Wyoming and New Mexico, as it noted in filings.
Environmental groups including ELPC, WORC, the Sierra Club and WildEarth Guardians have raised concerns about troubled coal companies’ right and ability to self-bond in these and other states, and OSMRE has asked state regulators to investigate and launched its own process to re-evaluate the program.
Regulators in Illinois, Indiana and Wyoming have said Peabody was still in compliance with the federal law designating when and how a coal company can self-bond. If federal regulators are unsatisfied with the state conclusions, they can continue investigating and they can rely in part on testimony from citizens groups.
This is the process Peabody had sought to halt, essentially arguing that the bankruptcy proceeding protected it from this intervention and that the environmental groups have no standing to file a legal challenge because they would not suffer imminent or concrete harm.
Peabody cited other cases involving dog racing and a radio station to argue that if parties take legal action against a company in bankruptcy challenging its license to operate, that amounts to seizing or interfering with its property.
ELPC and WORC countered in their filings that they would suffer immediate harm if Peabody got its way, since their role and rights to participate in an established federal process would be impeded. Anderson noted that WORC represents landowners who could be directly harmed by Peabody’s failure to adequately clean up mines.
“Peabody’s petition for reorganization did not bring with it immunity from environmental and public health laws nor permit it to suppress the expressive rights of citizens,” the environmental groups’ filing says.
A national issue
Learner said the groups’ role in the bankruptcy proceedings and the judge’s ruling are especially significant because in other ongoing coal company bankruptcy proceedings – namely Arch Coal and Alpha Natural Resources – bankruptcy officials have not prioritized self-bonding or addressed citizens’ enforcement rights, even though environmental groups have pressed the issue.
“There are a lot of issues in a bankruptcy proceeding,” Learner said. “In theory a judge should be aware of everything before the court. In practice judges are human beings. But Schermer has made clear that this is on his radar screen and that he’s giving attention to these issues in the context of the reorganization. And that’s very good news for the public interest.”
Sierra Club attorney Peter Morgan noted that the Sierra Club had tried to address Alpha Natural Resources’ self-bonding through bankruptcy court, but was denied standing to do so.
“In many ways the self-bonding issue is looming over all of these bankruptcies,” Morgan said, noting that companies’ self-bonds essentially tie the government’s hands in other respects of the bankruptcy proceeding, because without other guarantees for clean-up funds, the government needs to try to protect the funds the company plans to use for clean-up.
He said it’s especially important self-bonding be reformed in case the coal companies end up in what’s sarcastically referred to as Chapter 22 bankruptcy — a repeat Chapter 11 filing.
“Given that these companies are taking an optimistic view of what’s going to happen with coal in the future, if the market remains depressed they’re not going to meet their financial benchmarks, and they will be back in trouble,” he said. “That’s why it’s so important that they be transitioned away from self-bonding.”
WORC and the Powder River Basin Resource Council had tried to challenge agreements between Wyoming state regulators and both Alpha and Arch regarding their self-bonding arrangements, but the bankruptcy court did not give them standing and they were threatened with sanctions, so they backed off those efforts, Anderson said.
She said the group turned their attention instead to a public awareness campaign about self-bonding, and she thinks that helped drive Alpha to replace some of its self-bonds in Wyoming with other arrangements. Alpha is also expected to emerge from bankruptcy soon, and then environmental groups will have more freedom to make challenges.
“We’re very excited for them to get out of bankruptcy, it reinvigorates our rights and remedies,” said Anderson. “Some people think bankruptcy means coal companies are failing and they’ll get out of coal mining. But that’s not true by any means.
“Bankruptcy is very favorable to the company, and it has a lot of limiting aspects for groups like us to get involved. It is a process where a company can shed a lot of debt and emerge alive without all that debt. And bankruptcy makes it really difficult for citizen groups like ours to exercise our enforcement rights under environmental law.”