By Howard Learner
Watch your wallets. The Indiana Department of Natural Resources is allowing Peabody Energy to potentially stick Indiana taxpayers with the company’s $163 million of mine reclamation costs.
For too long, Peabody Energy has been allowed to “self-bond” — a promise to provide future reclamation funds — instead of purchasing a surety bond or creating a trust fund to pay for the costs of cleaning up its mines, avoiding contamination and reclaiming the lands that the mining has marred. Peabody is now verging on bankruptcy. Indiana officials need to act decisively to ensure that taxpayers aren’t left holding the financial bag.
Indiana and federal laws require mining companies to reclaim surface lands damaged by their operations and provide financial assurances that cleanup funds will be available. Companies often buy third-party surety bonds that act as insurance policies guaranteeing reclamation funds are available when needed.
Peabody, however, uses “self-bonds” for its six coal mines in Indiana. Maybe that made sense five years ago when Peabody Energy’s stock price was about $74 and its market capitalization was billions of dollars. Peabody has since lost 99 percent of its market value and is radically restructuring its finances and selling assets to avoid bankruptcy. Peabody has essentially “maxed out its credit cards” by borrowing all remaining funds under its corporate debt agreement.
Why is Peabody Energy in such financial distress?
First, Peabody’s management issued billions of dollars in debt and made an ill-timed bet that China’s coal imports would grow at a very rapid pace and the U.S. coal market would grow. That bet didn’t pay off.
Second, energy efficiency is saving businesses and residential consumers money on utility bills and reducing electricity demand and sales. In short, U.S. coal supply exceeds demand.
Peabody has $163 million in mine reclamation responsibilities for its Indiana mines. If state officials don’t step up now and require Peabody to set aside funds for its mine reclamation obligations, Indiana taxpayers may be left standing in line in federal bankruptcy court for pennies on the dollar.
The Environmental Law & Policy Center filed a citizens’ complaint contending this self-bonding violates the federal Surface Mining Control and Reclamation Act and urging Indiana officials to require Peabody to purchase a surety bond or otherwise commit real funds for mine reclamation obligations.
To date, Indiana officials have not changed course. The federal Office of Surface Mining Reclamation and Enforcement directed the Department of Natural Resources to respond “by taking appropriate action to cause the possible violations to be corrected or to show good cause for such failure.” The department, however, continues to allow Peabody Investments Corp. (PIC) to be the corporate guarantor for Peabody’s mining operations in Indiana. The Indiana Department of Natural Resources stated that “whether Peabody has placed all assets in [PIC] and all debts in another … is not a matter for Indiana to decide.”
What kind of corporate shell game is Peabody playing? Does PIC have $163 million available and committed to pay for reclaiming Peabody’s six Indiana mines, or not?
It is a vital matter, indeed, for Indiana to determine whether or not Peabody has the $163 million available to cover its reclamation responsibilities.
The buck stops with the Department of Natural Resources, and Gov. Mike Pence needs to step in. There is little justification for allowing Peabody Energy to continue self-bonding. Sound public policy should not hinge on Peabody’s bankrupt promise, and Indiana taxpayers should not be put on the hook for $163 million of Peabody’s reclamation costs and financial responsibility.
Peabody management’s decisions have landed the company in its current financial distress. Indiana officials should heed the warning signals and act quickly to require Peabody to purchase surety bonds or otherwise provide necessary funds to provide for its mine reclamation responsibilities before it is too late.