With bankruptcy looming, Illinois mine exemplifies self-bonding fears

HARRISBURG, ILL. – The neat, white wooden house used to look out upon an expanse of rolling forest. Now, it is abandoned and perched on the edge of a sprawling strip mine, Peabody Energy’s Rocky Branch operation in Southern Illinois.

Massive dump trucks full of gleaming black coal and giant bulldozers sit quietly amidst the torn up land on a Sunday afternoon in March. The area is quiet except for a few hawks soaring overhead. Other houses dotting the area are also abandoned, peeling porches that once looked out on woods now offer a view only of the mine.

Two years ago – on March 13, 2014 – residents occupied Rocky Branch Road and for hours prevented trucks from coming in to clear the Shawnee Forest for Peabody’s mine. Eventually the coal company got its way and the mine was opened. People living in the mine footprint or on its edges sold their homes to the company, fearing they had no choice. Others continue living nearby, suffering the earthquake-like effects of constant blasting and clouds of coal dust.

In February, Peabody announced 75 layoffs at the Cottage Grove mine adjacent to Rocky Branch and the nearby Wildcat mine – a sign of plummeting economic fortunes for the world’s largest privately-owned coal company, which lost more than $2 billion last year. In a security filing this week, the company said that it has missed debt payments and may seek bankruptcy protection.

Even though there has been much opposition to Rocky Branch and other mines in the area, many Southern Illinois residents also feel their fortunes are inextricably tied to coal, and the sharp downturn in the industry scares them.

Self-bonding

If the coal company’s fortunes continue to decline, neighbors of Rocky Branch and other Peabody mines could be left with a “double whammy,” as Environmental Law & Policy Center (ELPC) staff attorney Margrethe Kearney put it, “losing the industry and then being left to clean it up.”

Since Peabody, like other coal companies, is in extreme economic distress, environmentalists and watchdogs are deeply concerned about the company’s “self-bonding” arrangement for mine clean-up. Under a federal program instituted when coal was a booming industry, companies are essentially allowed to use their own assets to guarantee that they will clean up mines once mining stops.

But now it’s likely that Peabody could declare bankruptcy, like the companies Arch Coal and Alpha Natural Resources have, and that the funds would not be there for mine cleanup. It is estimated that Peabody will need $92 million to clean up its three Southern Illinois mines and $163 million to remediate six Indiana mines.

ELPC filed citizen complaints with federal and state regulators last month demanding that Peabody be required to put up meaningful assets to cover mine cleanup. But in early March, the departments of natural resources in Indiana and Illinois sent letters to the federal Office of Surface Mining Reclamation and Enforcement (OSMRE) affirming Peabody’s right to self-bond for mine cleanup, and denying the citizen complaints had merit.

The citizen complaint emphasized that mines in Illinois and Indiana are being run by Peabody Investment Corporation (PIC), a subsidiary of Peabody Energy, and suggested that Peabody manipulated finances to make PIC appear to be financially healthy and compliant with legal requirements for self-bonding. ELPC points out in the complaints that PIC’s assets are pledged to its parent company, and its mines are in fact pledged as collateral for the parent company’s other operations.

In response to questions about the viability of its self-bonding arrangements and criticism from local residents, Peabody spokesperson Kelley Wright made this statement:

“Peabody is pleased with the continued validation of our approach toward land restoration in Illinois and Indiana. We use best practices to restore mined lands into hardy and productive rangeland, wildlife habitat, hardwood forests and wetlands and are routinely recognized for these programs, earning 90 awards since 2000. The Illinois Basin is a core region. Our mines are highly competitive in challenging markets and provide jobs and major economic benefits to local communities.”

Regulators’ affirmation

The Indiana Department of Natural Resources said in its March 2 letter to OSMRE that PIC has more than $10 million in tangible net worth and meets the liability-to-assets ratio required for self-bonding, according to the department’s review of confidential financial documents submitted by Peabody.

“Whether Peabody has placed all assets in that company and all debts in another, which is the crux of the argument from ELPC, is not a matter for Indiana to decide,” says the letter. It noted that Peabody will submit updated financial information at the end of March and the department will review that information to determine if the criteria for self-bonding are still met.

“They were very open about the fact that they didn’t care if Peabody had created the subsidiary and dumped their assets into it and put the liabilities elsewhere, they basically said, ‘This isn’t our business,’” said Kearney. “Well, it kind of is. It’s your job to make sure the obligations can be met and the reclamation happens. They never directly addressed our argument that because PIC’s assets are pledged to the parent corporation, you need to look at the parent corporation’s finances.”

Illinois’s March 4 letter said that under the law it is the company’s responsibility to notify regulators if the requirements for self-bonding are not being satisfied. Kearney feels Illinois’s letter was not as “striking” as Indiana’s, but that Illinois regulators still missed or ignored the main point of the citizens’ complaint.

“Illinois did a little better job in saying if you didn’t disclose this to us, that’s a violation,” said Kearney. “But they still left it up to the company… Under the regulations they have the authority to ask for any information they think would be useful. It’s a discretionary decision” whether to allow self-bonding.

From Wyoming to Illinois

The ball is now in the federal OSMRE’s court. It could tell the state agencies to demand more information or alternate bonds from Peabody. Groups like ELPC could also appeal to the heads of the departments of natural resources in the states.

Nationwide, Peabody has about $1.4 billion worth of self-bonding for reclamation operations.

In February the group WildEarth Guardians filed similar complaints regarding Peabody’s self-bonding arrangements for its mines in the west. A week later, the Department of the Interior demanded the states of Colorado, Wyoming and New Mexico investigate whether Peabody should be forced to pay more to guarantee mine cleanups. Last summer Wyoming had approved Peabody’s self-bonding arrangements.

Georgia De La Garza grew up in the heart of Southern Illinois coal country. When she returned in recent years after living in other U.S. cities and Latin America, she was shocked and dismayed at how mining had changed the forest landscape she remembered from her youth. She has become a leader in the grassroots movement calling for accountability from coal companies.

“Peabody did to Rocky Branch what they do best,” De La Garza said. “They came in and terrorized the people, destroyed the forest, ran off the wildlife, ruined the water, and changed the landscape forever. The community is completely divided by mining operations. How do we live with non-stop explosions, continuous loud noise, air filled with particles, no sleep, fear, and stress beyond belief? Peabody should hand over ‘real’ assets to guarantee they will not abandon their disaster.”

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