Reclamation Bonds Ruled Inadequate

By Ken Ward Jr.

Haden did not actually order the West Virginia Division of Environmental Protection (DEP) to immediately change its bonding system. But the judge did rule that, as a matter of law, the state’s program is so flawed that the tougher federal program automatically takes effect in the state. In his ruling, Haden also insulated the bonding case from being dismissed, based on the appeal of his October 1999 mountaintop removal opinion. The bond program ruling could, at least temporarily, block the DEP from issuing mining permits. Eventually, the decision may force coal operators to post bonds that are many times greater than those allowed under DEP’s current rules.

"Unless the coal industry is made to pay for these liabilities and clean up all these problems, the rest of us are going to get stuck with this," said Cindy Rank, mining chairwoman of the West Virginia Highlands Conservancy. "Given all of the flak and criticism that Judge Haden has received in the past over his rulings on the surface mining act, you have to applaud him for taking what is a very brave step, but on this issue is exactly what the law requires."

Brian Glasser, a lawyer for DEP, said, "I just got the opinion, and we’re reading it. We’ll take whatever action is appropriate."

John Smathers, a lawyer for the U.S. Office of Surface Mining (OSM), said, "This is really a major opinion. It’s going to have far-reaching implications."

In his Thursday opinion, Haden denied a DEP request that he dismiss a lawsuit filed by the West Virginia Highlands Conservancy over the state’s mine reclamation bond program. Last year, the Conservancy filed the suit against DEP and OSM to try to force them to increase bond amounts enough to adequately fund reclamation of abandoned mine sites. The Conservancy is represented by Charleston lawyer Joe Lovett, Morgantown lawyers Pat McGinley and Suzanne Weise, and Jim Hecker of the Washington firm Trial Lawyers for Public Justice.

Under the 1977 Surface Mining Control and Reclamation Act, or SMCRA, coal companies must post reclamation bonds to obtain mining permits. These bonds are supposed to pay for reclamation if the companies file bankruptcy or just walk away from a mine. Mines that were abandoned before August 1977, when the law took effect, are cleaned up with a pool of money from coal production taxes. If a company abandons a mine after August 1977, and the bond won’t cover reclamation costs, the Special Reclamation Fund, or SRF, is supposed to step in. The fund is paid for with forfeited reclamation bonds, a per-ton coal tax, and interest on these monies.

But the fund is broke, in large part because DEP allows coal operators to post bonds that don’t come close to covering mine reclamation costs.

Under SMCRA, state mine regulatory agencies must adopt one of two types of bonding systems. In one system, designed by OSM, bonds "shall be sufficient to assure the completion of the reclamation plan" if the company abandons the mine site. In the other, called an alternative bonding system, state bond programs must "achieve the objectives and purposes" of the OSM bonding plan.

West Virginia has a two-tiered alternative bonding system. The first tier requires companies to post site-specific reclamation bonds of between $1,000 and $5,000 per acre. "Because the amount of this bond is artificially capped at $5,000 per acre, it is often inadequate to cover the full costs of reclamation," Haden wrote in his opinion. To make up for that, the state created its second tier, which is the SRF.

In his ruling, Haden noted that OSM has in annual reviews since 1989 found West Virginia’s alternative bonding system "incapable of meeting the federal requirements." Citing an October 1995 OSM Federal Register notice, the judge noted, "Based on state estimates as of June 30, 1994, the excess liabilities were $22.2 million, an estimate that also failed to include the cost of treating polluted water discharged from bond forfeiture sites." In that notice, OSM said the West Virginia bond program was "not sufficient to assure the completion of reclamation." OSM ordered the state to "eliminate the deficit in the State’s alternative bonding system and to ensure that sufficient funds will be available to complete reclamation, including the treatment of polluted water, at all existing and future bond forfeiture sites."

In January 1996, OSM’s 1995 annual report on the West Virginia program said that the state’s bonding system had a total deficit – including water treatment costs – of $61.8 million. "Because West Virginia’s alternative bonding system has been found inconsistent with and less rigorous than the minimum federal standards, the State [DEP] Director has a non-discretionary duty to comply with the minimum federal standards for bonding," Haden wrote.

In his ruling, Haden responded to motions by the Wise administration that the case be dismissed. As the Underwood administration argued in other mining cases, Wise’s lawyers said that cases over the state’s regulation of strip mining belong in state court, not in federal court. They say such issues involve questions of state law, not questions of federal law. On that basis, an appeal of Haden’s October 1999 ruling to limit mountaintop removal is currently pending before the 4th U.S. Circuit Court of Appeals in Richmond, Va. But because Haden ruled that the federal bonding program is now in effect in West Virginia, the bond lawsuit now clearly involves questions of federal law – and therefore belongs in federal court, the judge said. In making that part of his decision, Haden cited a West Virginia Supreme Court ruling that DEP lawyer Tom Clarke had sought in an unrelated case.

As part of their motion to dismiss the bonding case, Glasser and DEP lawyer Ben Bailey argued that after OSM concludes the state program is inadequate, nothing happens until federal officials propose their own plan or take over the state's bonding program. But in the state Supreme Court case, Clarke argued that once OSM says a state rule is not stringent enough, the federal law is automatically in effect in the state. Clarke argued in that case that "DEP takes the position that its hands are tied by federal law, based on the clear statutory pronouncement of pre-emptive effect with regard to state plans that are inconsistent with its provisions."