Billionaire coal operator admits to hundreds of violations in multi-million-dollar settlement

bestep@herald-leader.comAugust 19, 2014 

A billionaire coal operator has admitted to hundreds of reclamation violations in Eastern Kentucky and agreed to post $10.6 million in bonds to fix the problems.

Under the deal with Kentucky regulators, Jim Justice, of West Virginia, also will pay $1.5 million in fines.

Justice's companies already had paid $419,635 under citations included in the settlement, but owed an additional $4,498,995, which was cut to $1.5 million as part of the deal.

In addition, Justice and his son, Jay Justice, pledged their personal assets to guarantee payment on the reclamation work and fine.

Forbes has estimated Jim Justice's fortune at $1.6 billion, but noted that figure had slipped a bit because of hard times in the Central Appalachian coal industry.

The settlement covers a wide variety of land reclamation work, such as cleaning out sediment ponds, stabilizing landslides, fixing drainage problems and monitoring water in Harlan, Knott, Pike, Leslie, Letcher, Breathitt, Magoffin and Floyd counties, mostly at surface mines but also some underground mines.

It also specifically mentions fixing three highwalls — sheer walls left when a company cuts a large notch in the side of a mountain to reach coal. Federal law requires restoring the approximate original contour of the slope, but in one case, a Justice company left a highwall more than a mile long and 80 feet high in Harlan County.

The sweeping settlement, reached last week, comes after the state threatened in June to shut down several mines owned or controlled by Justice.

At the state's urging, Justice's companies had made some progress in correcting reclamation problems in the prior two months, according to a letter from Steve Hohmann, commissioner of the state Department for Natural Resources.

However, inspectors had issued dozens of new violation notices to the companies in the same period.

Hohmann said Justice's companies had engaged in a "chronic and pervasive" failure to submit water-monitoring reports; had not responded to requests for permit information; and hadn't lived up to agreements to pay fines.

Hohmann said he regretted the move to suspend mining permits because that would hurt workers through no fault of their own, but laid the blame squarely on Justice's operation.

"For the past two and one half years, your company has allowed these problems to continue, languish and multiply to the point that this department is left with no recourse" but to shut down mines, Hohmann said in the letter to one of Justice's companies.

However, the state held off on suspending the permits while trying to work out a settlement with Justice.

The settlement listed hundreds of alleged violations by nine Justice companies. The biggest number of mining permits involved was in Harlan County, with more than 30 in the names of Four Star Resources, Infinity Energy, Sequoia Energy and Virginia Fuel, according to the settlement document.

Kentucky Fuel Corporation, which had permits in several counties, also had a large number of violations.

"The violations were among the most egregious we have seen in nearly a decade," Energy and Environment Cabinet Secretary Len Peters said Tuesday in a statement. "The fact that the operators ignored the many attempts by the state to have them correct the violations made the final agreement even more important."

Peters said the extra bond payments Justice will post, and the billionaire's personal assurance of payment, "give us more confidence that the reclamation work will be done properly and quickly."

Tom FitzGerald, an attorney who heads Kentucky Resources Council and has been involved in challenges of some Justice-company permits, said he was not troubled that the settlement cut the fines Justice will pay, given the overall settlement.

It is much more significant that Justice admitted violations, agreed to post more reclamation bond money, and is personally liable, FitzGerald said.

The bonding is important because it will pay for reclamation even if the companies involved go bankrupt, he said.

"Obtaining a personal guaranty, without having to go through an individual civil penalty proceeding, and getting adequate bonds posted, were of much more value," FitzGerald said.

But Stanley Sturgill of Lynch, a retired federal mine-safety inspector, said he was disappointed the fine was reduced for Justice.

"If I have to be responsible for my debts, looks like he would be, too," said Sturgill, a member of Kentuckians for the Commonwealth. The organization has contested an application by A&G Coal — one of Justice's companies — to surface-mine part of Black Mountain above Lynch.

Justice's companies shouldn't have racked up so many violations to begin with, Sturgill said.

Justice also has faced citations for alleged reclamation violations at mines in West Virginia, Virginia, Tennessee and Alabama, as well as complaints in Eastern Kentucky and elsewhere about not paying bills.

In an interview with the Associated Press in June, Justice acknowledged his companies have debts but said that is indicative of the coal industry's struggles.

"The coal business is terrible, it's just terrible, and we're doing everything in our power to stay open and keep people working," Justice said at the time. "We're one of the few (companies) that are even still working, trying to employ people and pay taxes."

Coal production in Central Appalachia, including Eastern Kentucky, has declined sharply in recent years because of a number of factors, including competition from natural gas and other coalfields, tougher federal environmental regulations and relatively high mining costs.

Bill Estep: (606) 678-4655. Twitter: @billestep1.

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