West Virginia government regulators and a coalition of citizen groups are convinced that plans to sell off the operations of bankrupt Patriot Coal won't provide adequate funding for land reclamation and longterm water pollution cleanup at Patriot strip-mine sites across the state.
As Patriot's proposals to split up its holdings - selling part to a Kentucky mining company and part to a Virginia conservation group - move through bankruptcy court, lawyers for the West Virginia Department of Environmental Protection and for three citizen groups have filed strongly worded objections with U.S. Bankruptcy Judge Keith L. Phillips in Richmond.
In a court filing late last week, DEP lawyers Kevin Barrett and Michael Hissam called the original Patriot plan to sell its higher-quality assets, those without significant "legacy liabilities" for miner pensions and environmental reclamation, "little more than pie in the sky." Barrett and Hissam said the latest twist to sell Patriot sites with significant pension and reclamation costs to the Virginia Conservation Legacy Fund is "a Hail Mary pass" that can't rescue a plan that is "destined to fail."
"Patriot's plan reflects nothing more than a wing and a prayer, a 'walk-away' in coalfield vernacular, to satisfy the whims of its hedge fund investors that seek to use their position on all sides of this deal to extract unwarranted value out of Patriot's assets to the exclusion of all the other parties in interest in these cases and simultaneously shed the liabilities inextricably associated with their collateral," the DEP lawyers said in the agency's objection.
Patriot filed for bankruptcy protection in May, to reorganize again just two years after emerging from Chapter 11, amidst continued challenges for Appalachian coal producers, who face stiff competition from cheap natural gas, the depletion of the best coal seams in the region, growth of renewable energy sources and new environmental rules aimed at curtailing air pollution from coal-fired power plants.
The Patriot case is one in a series of ongoing coal industry bankruptcies that have labor organizations, environmental groups and regulators increasingly concerned that the downturn in the mining business could prompt some operators to try to escape from growing liabilities for mine cleanup and worker benefits.
United Mine Workers officials have been warning for years about the union's troubled pension and health care plans, and citizen groups have likewise complained for many years that West Virginia regulators were not forcing coal companies to post adequate bonds or pay sufficient reclamation taxes to cover the potential costs of long-term water treatment, especially if large mining operators went belly-up.
Under Patriot's current proposals, Kentucky-based Blackhawk Mining would purchase some of the company's assets but would not acquire its unionized Federal No. 2 Mine in north-central West Virginia, its sprawling Hobet 21 mountaintop-removal complex along the Boone-Lincoln county line or large surface-mining sites in Logan County that have significant Clean Water Act obligations to clean up stream pollution.
Patriot proposes to sell those properties to the Virginia Conservation Legacy Fund, which says it will continue to mine coal at the underground Federal No. 2 Mine and will launch a major tree-planting program to reforest the sites where Patriot engaged in large-scale surface mining.
DEP lawyers, though, told the court that the VCLF "has no experience operating a coal company or performing boots-on-the-ground reclamation and water treatment." And Patriot's plans leave the foundation without the hundreds of millions of dollars needed for long-term water pollution treatment at Patriot sites, the DEP lawyers said.
They said that, while Patriot appears to be "selling" its only valuable assets to Blackhawk for "something appearing on the face of it to approach $650 million, Patriot's estate will not see one dime of that money."
"Instead, the banks and the hedge funds backing Patriot's plan will walk off with all of that value, leaving a carcass consisting of Patriot's orphaned assets (which really amount to liabilities), no cash and other liquid assets, no apparent funding, and little if any realizable value," the DEP lawyers said.
They said the Patriot plan "threatens to expose the people of the State of West Virginia to the serious public health and safety risks associated with unreclaimed land and untreated water at former mining sites," in violation of federal and state strip-mining laws.
In a separate court filing, lawyers for the Sierra Club, the Ohio Valley Environmental Coalition and the West Virginia Highlands Conservancy recount a series of citizen lawsuits, court orders and settlements to force Patriot to comply with water pollution laws and to begin treating violations of limits on the discharge of toxic selenium from its operations.
The citizen group lawyers noted that Patriot had disclosed in its 2013 annual report a "selenium water treatment obligation" of more than $400 million. Patriot said in that report that it would need to spend $60 million to $80 million in the next four years to install selenium treatment systems and an additional $6 million to $8 million annually to operate, maintain and monitor those systems.
Under a settlement with the citizen groups, Patriot also is required to phase out the use of large-scale surface mining in Central Appalachia.
The citizen group lawyers note that Patriot's bankruptcy plan does not include those limits on large-scale surface mining or for compliance with the water pollution treatment requirements of other court orders and agreements.
Earlier this month, the UMW announced that it had reached tentative agreements with Blackhawk Mining and with the Virginia Conservation Legacy Fund for its workers at Patriot's operations. However, the UMW said in a new court filing that, because those agreements haven't yet been ratified by its members, approval of the bankruptcy plan by the court is "at best, premature."
A hearing to consider approval of Patriot's bankruptcy plan had been scheduled for Sept. 16, but the company indicated Friday it wants to delay that until early October.
Reach Ken Ward Jr. at kward@wvgazette.com, 304-348-1702 or follow @kenwardjr on Twitter.