By Kathiann M. Kowalski

November 27, 2019 - An environmental group says Ohio’s Reclamation Forfeiture Fund is inadequately funded in violation of federal law.

Murray Energy’s bankruptcy case is reviving concerns about an Ohio fund meant to pay for closure and reclamation of coal mines if owners become financially unable to pay those costs.

Coal mining infrastructure in rural eastern Ohio.

Days before the company sought relief under federal bankruptcy laws, the nonprofit Environmental Law & Policy Center formally asked federal and state regulators in October to evaluate Ohio’s Reclamation Forfeiture Fund, which ELPC claims is underfunded in violation of federal law.

As of June, the fund had about $22.2 million, according to a report prepared for its advisory board by Pinnacle Actuarial Resources. The same report estimated the reclamation costs for Murray Energy’s 13 permitted sites in the state at more than $200 million. The total estimate is about $545 million for all Ohio permitted coal mines.

“The importance of reclaiming those coal mine sites is not theoretical. It’s a physical reality,” said Howard Learner, executive director at ELPC. If the job isn’t done right, “there are predictable results in terms of contaminating the water and scarring the land. That has an impact on the public.”

The Ohio Department of Natural Resources and the federal Office of Surface Mining Reclamation and Enforcement have not yet responded to ELPC’s Oct. 25 letter, spokespeople for those agencies said.

For now at least, ODNR does not seem to be overly troubled by the company’s bankruptcy filing.

“As we saw with the Westmoreland Coal Company proceedings last year, a bankruptcy filing does not mean solubility or forfeiture of permits,” ODNR spokesperson Sarah Wickham said. “ODNR will monitor this situation as Murray Energy continues operation and remain in communication with the company. Currently, we have no outstanding reclamation violations with Murray Energy across their 13 permits.”

If the fund were found to violate federal law, it could jeopardize the state’s authority to administer the federal Surface Mining Control and Reclamation Act, or SMCRA. Advocates will likely also ask the federal bankruptcy court to take action.

“It’s all the more important that the court make sure that funds are set aside to accomplish mine reclamation obligations of Murray Energy, so that taxpayers aren’t left holding the bag, and conservation and clean water values aren’t put at risk,” Learner said.

Murray Energy’s press office did not respond to a request for comment for this article.

At Risk

Ohio’s Mine Reclamation Fund is meant to provide safe closure and reclamation of mine properties if owners become unable to pay those costs. Pinnacle’s report to ODNR this summer found that the Fund was currently solvent for expected short-term and long-term liabilities.

“This is not to say that the current Fund balance is adequate to cover catastrophic events,” the report authors added.

An average “shock loss” on top of expected forfeitures would push the fund into a negative cash flow within 12 years, the report said. And if the largest permit holder failed, the fund would need more than 150 years without other companies forfeiting in order to cover the loss.

Excess insurance could reduce the prospect for catastrophic loss by shifting some of the risk to a reinsurer. “We understand that the fund does not currently have excess insurance protection,” the Pinnacle report said.

To complicate matters more, Gov. John Kasich’s administration diverted $5 million from the fund in 2017. Only part of that money has been replaced so far.

“Gov. [Mike] DeWine and [ODNR] Director [Mary] Mertz recognized the importance of restoring the Reclamation Forfeiture Fund and requested in the budget bill that a total of $4 million be appropriated to the fund,” Wickham said. “Thanks to the support of the Ohio General Assembly that funding was secured. Two million was appropriated in July 2019, and the remaining $2 million will be appropriated next fiscal year in July 2020.”

The coal industry’s level of payments into the fund plays a bigger role in its “distressingly low” balance, in Learner’s view. The state’s $2,500 per acre bonding rate is the lowest among all coal mining states and isn’t based on any estimate of a particular site’s actual closure and reclamation costs, according to ELPC.

“Now there are companies like Murray Energy going bankrupt,” Learner said. “That puts more stress on the fund, which doesn’t have a reasonable balance.”

“Murray Energy is not going out of business,” President and CEO Robert Moore said in an Oct. 29 letter to employees. Rather, the bankruptcy reorganization “is necessary to preserve ongoing operations, reduce the Company’s debt load, and position the Company for future success,” a companion FAQ sheet told workers.

Nonetheless, the company’s FAQ sheet added, “The thermal coal markets that Murray Energy traditionally serves have been meaningfully challenged over the past few years.”

The same could be said for Ohio’s coal industry as a whole. Ohio’s 2018 production fell to 8,993 short tons, the Energy Information Administration reported last month. That’s down 5.2% from the prior year and just over a third of Ohio’s coal production in 2008. In contrast, the state’s peak production in 1970 topped 55 million short tons.

Cheaper natural gas has been supplanting coal. Renewables have also been more competitive in the last decade.

Renewable energy generation is poised to surpass U.S. coal output for the first time in 2021, according to a Nov. 22 analysis by the Institute for Energy Economics and Financial Analysis.

Earlier this year, a March 2019 analysis found that the levelized cost of new wind or solar is already cheaper in most cases than the ongoing costs for keeping a coal plant open. Vibrant Clean Energy and Energy Innovation & Policy prepared that report. 

What’s Next

The next step with respect to Ohio’s Mine Reclamation Fund will be for federal and state authorities to respond to ELPC’s citizen request for an evaluation of the state’s administration of the federal SMCRA law.

“We’re examining the series of complex issues that were raised,” said spokesperson Christopher Holmes at the Office of Surface Mining and Reclamation Enforcement.

Meanwhile, Murray Energy is trying to work out debt issues, and its bankruptcy filing reflects that important senior creditors are on board. Those proceedings will include an opportunity for other parties, including environmental advocates, to submit filings. As of Nov. 23, a deadline for those filings had not yet been set. A meeting for creditors is scheduled for Dec. 20.

In the longer term, Ohio and other states will need to deal with the prospect of mine reclamation costs beyond the business-as-usual level of “expected” financial forfeitures by companies. Those prospects could well grow as challenges for the coal industry continue.

“They’re simply looking at a declining market,” Learner said.