Bankrupt coal company has environmental violations that could cost KY millions to fix

Bankrupt coal companies Blackjewel LLC and Revelation Energy have failed to make progress on scores of environmental obligations and might leave Kentucky taxpayers on the hook for tens of millions of dollars in reclamation costs, state officials contended during a bankruptcy hearing this week.

Filings in federal bankruptcy court show that Blackjewel’s violations alone account for 30 percent of all outstanding non-compliance notices sent by the Kentucky Department of Natural Resources as of Dec. 31. The state warned the court that the company has made little or no progress in addressing those violations.

In addition, bonds posted by the company to cover reclamation costs may be woefully inadequate. Kentucky has had longstanding problems with coal companies posting inadequate bonds to cover reclamation.

Blackjewel and Revelation Energy together filed for bankruptcy last year in one of the most tumultuous coal company bankruptcies in recent memory. The companies suddenly laid off hundreds of Kentucky workers and failed to pay many of them for past work.

In response, some former employees blocked a train hauling coal from a mine in Harlan County, demanding their back-pay. Their protest lasted months, drew national attention to their cause, and eventually forced the company to pay up.

Officials in Harlan County are still worried about those miners’ well-being, though. According to the Harlan Enterprise, Harlan County Judge-Executive Dan Mosley asked Gov. Andy Beshear in early January to extend unemployment benefits for those miners, which are set to expire in February, but has yet to hear back.

Earlier this month, the company asked the bankruptcy court to review the finances of former CEO Jeff Hoops, alleging that Hoops may have transferred tens of millions of dollars from the company “for his benefit and the benefit of his family and other Hoops-Related Entities.”

Blackjewel’s bankruptcy proceedings have been ongoing since last summer, and environmental concerns are only now rising to the forefront.

By the end of 2019, Revelation Energy had 157 outstanding notices of non-compliance; 234 cessation orders; 171 penalty assessment conferences; and 59 administrative case hearings.

At a bankruptcy hearing in Charleston, W.V., on Wednesday, a representative of the Kentucky Department of Natural Resources referred to a letter the state filed Jan. 13 in which the department reviewed 20 percent of permits held by Blackjewel and Revelation. It found that the bonds used to cover reclamation liabilities would come nowhere close to covering the estimated reclamation costs.

Of the permits reviewed, reclamation costs would exceed the bond amounts by about $38 million, according to the state.

At the same time, an attorney with the Appalachian Citizens’ Law Center wrote a letter on behalf of a number of advocacy groups who warn that “the people living near many of Blackjewel’s former mine sites would be left with inadequately reclaimed land and perpetual water pollution issues” if the company is allowed to continue on its current course.

Mary Cromer, the attorney who drafted the letter, asked the court to support a request by the Kentucky Energy and Environment Cabinet to escrow the company’s cash-on-hand until regulatory agencies can determine exactly how much Blackjewel’s reclamation bonds will fall short.

The bankruptcy judge who oversees the case did not make an immediate ruling Wednesday on that request.

According to an annual report from the U.S. Office of Surface Mining Reclamation and Enforcement, mines have become increasingly likely to have environmental violations in recent years.

The report, which covers July 1, 2017, to June 30, 2018, found that the percentage of inspected permits with no violations fell to a 10-year low of 57 percent during the time period.

In 2007, 87 percent of inspected permits were found to have no violations. The most common violations in 2017-18 involved water quality, sedimentation ponds and water monitoring.

The report also found that the majority of bonds for permits forfeited in fiscal year 2018 did not adequately cover the estimated cost of reclamation. The Kentucky Division of Abandoned Mine Land estimated the cost of reclamation on those permits to be $5.2 million, while the bonds covered just $3 million. An OSM official told the Herald-Leader that those estimates do not always reflect the actual cost of reclamation.

After criticism from federal regulators, the state, in 2011, began the processing of increasing the amount of bonds that coal companies must post for reclamation purposes.

Blackjewel’s failure to post adequate bonds, as the state described during recent bankruptcy proceedings, raises questions about how much progress Kentucky has made in that area.

The OSMRE report indicates that federal officials will continue to study the effectiveness of Kentucky’s bond procedures in 2020.

In bankruptcy court, Blackjewel has argued that it has sold, or is planning to sell, many of the permits that require reclamation work. Those proposed sales would transfer the company’s reclamation liabilities to the buyers, and decrease its liabilities from $520 million to $80 million.

Kentucky officials disputed that notion, saying the company has only one permit transfer application and has “no actual plan to transfer reclamation obligations to a viable entity.”

This story was originally published January 23, 2020 at 4:13 PM.