Underbonding of Reclamation Sites and Pending Bankruptcy of the Special Reclamation Fund

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WVEC, WV Sierra Club Energy Campaign Fact Sheet

In March 2022, the legislature passed SB1, a bill that creates a mining mutual insurance company to provide bonds to failing coal companies that cannot get insured through the private sector. The Legislature allocated $50 million in taxpayer dollars for seed money for the new insurance company. Legislators testified that this initial earmark could be just the beginning in what could be a long-term taxpayer bailout of the coal industry.

OVERVIEW

In 1977 the federal Surface Mining and Reclamation Act (SMCRA) was established, requiring that coal operators reclaim their mine sites as mining is completed. Because reclamation occurs after the coal is removed, mining companies need regulation to assure mines are reclaimed. So SMCRA requires coal operators to post a bond adequate to cover the cost of reclamation as part of their mining permit.

In West Virginia, however, the required bond does not cover the cost of reclamation. To make up for the shortfall, the state created a “Special Reclamation Fund” (SRF) to cover the cost of reclamation for sites that went bankrupt or forfeited their bonds. The SRF is funded by a tax of 27.9 cents/ton of coal mined. As less coal is mined here, current reclamation liabilities far exceed the money available in the SRF. The underbonding of West Virginia reclamation sites and the pending bankruptcy of the SRF could end up costing state taxpayers over $1 billion.

FACTS FROM 2021 WEST VIRGINIA LEGISLATIVE AUDIT REPORT

A 2021 WV Legislative audit report on the SRF identified hundreds of millions of dollars in reclamation liabilities. It showed that the cost of reclamation exceeds $6,000 per acre while the average bond set by the WV Department of Environmental Protection is only $2,882 per acre.
Only 7.6% of total reclamation liabilities are covered by forfeited bonds. Over 90% of reclamation liabilities are covered by the 27.9 cents/ton reclamation tax for the SRF.
As mining continues to decline, there will be less money coming in but higher reclamation costs.
The report also showed that we have over $500 million “at risk” bonds, but only $190 million in state reclamation funds.
A single company in WV, Indemnity National Insurance Company holds 67% of mining bonds. Most of the bonding companies are at risk for bankruptcy, further threatening the reliability of bonds.
The report recommended that bonding rates be increased or limits imposed on insurer risk or taxpayer liability. SB 1 did not include any of the recommendations.

ACTION

To address this problem, we seek new legislation that will implement the recommendations of the Legislative Audit: