EQC delays coal permit to consider company track record

The Belle Ayr coal mine, pictured here, and Eagle Butte mine have been acquired by Blackjewel LLC. (Dustin Bleizeffer/WyoFile)

May 21, 2019 by Andrew Graham, WyoFile

A state environmental review board Thursday withheld approval of  a mining permit transfer until it could determine whether a sprawling web of coal companies’ environmental violations in other states should block the owner from operating in Wyoming.  

The seven-member Environmental Quality Council delayed approval of a mining permit transfer from Contura Energy to Blackjewel LLC, likely until early July. The board is appointed by the governor and provides oversight to the Department of Environmental Quality. 

Article continues below...

Last week’s decision came after a lawyer with the landowner group Powder River Basin Resource Council argued DEQ was falling short of its obligations to consider violations committed in other states.

The permit transfer is part of a larger deal between Contura Energy — an entity spawned by the bankruptcy of Alpha Natural Resources — and Blackjewel, owned by appalachian coal magnate Jeff Hoops. Contura is offloading the Belle Ayr and Eagle Butte mines in the Powder River Basin. Blackjewel is already operating the mines, and has been for 18 months, under an agreement with Contura. 

PRBRC objected to the mine permit transfer on the grounds that DEQ failed to properly assess Hoops’ environmental compliance record at his eastern mines. State law requires the DEQ to look at compliance records for all mines associated with a permit applicant and to not issue the permit if those violations aren’t being remedied. 

Lawyers for both Contura and Blackjewel argued that though the mines’ ownership would go to Hoops, those who operate the mine in Wyoming would largely not change. Both mines have good compliance records with Wyoming regulators, with only four mine violations in the last three years, none of which were serious enough to halt mining. 

But the law creates a system of national accountability by ensuring a mining company can’t open a mine in one state until it’s cleaned up its messes in another, PRBRC attorney Shannon Anderson argued. 

DEQ Land Quality Division manager Kyle Wendtland located 42 violations by Hoop’s companies in a national database maintained by federal regulators, Wendtland told the council. The majority of the violations were severe enough, according to Powder River Basin Resource Council, that regulators in eastern states ordered halts to some work on the mines. 

Wendtland then approved the permit after the violations were moved to “conditional” status a mere two days after he alerted the permit applicants. 

A conditional status meant the mining companies were working with state agencies to remedy their violations, Wendtland said. 

But under questioning from Anderson, Wendtland said a company could also move a violation to conditional status merely by appealing it, not rectifying the mistake or paying a fine. Wendtland did not look into the 42 violations to see if the companies — Revelation and Keystone, both owned by Hoops — had appealed the violations after being alerted by DEQ that the agency would hold permit approval until those violations’ statuses changed. 

An appeal would let the company move the violations to conditional, and if DEQ accepted that change, let the company take on new mining permits without rectifying its violations in eastern states. 

DEQ argued it had not needed to investigate the violations further beyond the conditional designation. When asked by an attorney for Contura Energy, Wendtland said DEQ did not have the resources to “independently investigate” violations in other states. 

The Office of Surface Mining, which maintains the database, provided a phone number for a contact at each of the state regulators that issued violations against Hoops’ companies. Kentucky, West Virginia and Virginia all had violations that were moved to conditional after DEQ inquired with Blackjewel.  

“Please use the contact information below to verify the conditional status of the violations with the states,” a note from OSM on the database report said. 

Wendtland had not called any state regulators, he said when asked by Anderson. He was not obligated to under the law, he said.

It says please use, Wendtland said, “it’s not a shall.” 

On Monday, WyoFile called the number listed for the Kentucky regulators. Within a few hours, a communication specialist for the agency informed WyoFile that all of Revelation Energy’s violations in that state — there are 26 of them, 24 of which are listed as cessation orders — were conditional because the company had chosen to contest them. 

The company’s appeals will undergo administrative hearing in those states but have not yet.

Wendtland argued he had followed the process DEQ has used to approve mine permits for decades. But that didn’t convince the EQC members, who asked lawyers for all four parties — the PRBRC, the DEQ and the two coal mines — to submit further information to them on that section of permitting law and on Hoops’ record in other states.

The deal has also raised eyebrows elsewhere. An Ohio bank sued Blackjewel affiliate Revelation Energy over the deal, claiming Revelation was moving assets to a spin-off company while still in default on its loans, according to a report in the Casper Star-Tribune. 

The two mines are considered weak assets in the struggling coal mining industry because of the lower electrical potency of the coal in the southern part of the Powder River Basin. 

Contura sold the mines at a loss, but said it would receive tax write offs against future income and escape from under more than $200 million in reclamation obligations attached to the two mines. 

Transparent collateral

The oversight board dismissed PRBRC’s second objection that the value of two large ranch properties being used as collateral for mine reclamation bonding warranted further scrutiny. 

The properties are being transferred to Blackjewel as part of the mine sale, with the receiving company also offering them to DEQ as collateral. 

The properties have been used by Contura as collateral on $26 million of the $119 million in reclamation bonds on the mine. Reclamation bonds are money mine operators have to stake to ensure they complete their clean-up obligations. The rest of the bonding is through surety bonds, where a third party insuring company promises to pay for reclamation in the event of a coal mining default. 

The ranches, which total around 31,000 acres, are the first pieces of real estate to be offered as collateral for a reclamation bond since a statute change was brought during the 2018 legislative session by Campbell County Sen. Michael Von Flatern (R-Gillette). 

PRBRC argued accepting the properties was a risky proposition for the state, which would have to sell them in the event Wyoming had to pay for mine reclamation. If sold at a lower value than they received in appraisals, Wyoming taxpayers would have to make up the difference, Anderson said. 

She also argued the state could incur significant costs in selling the properties, and had failed to account for mineral rights on the land and if that could complicate the sale. For example, if mineral rights were held by the federal government or an energy company, surface rights disputes could complicate the sale. 

The Environmental Quality Council should scrutinize the deal further because this was the first instance of real property bonding, Anderson argued, and the properties were being used to guarantee reclamation of a less-valuable coal mine during troubled times for the industry. 

“It may be hypothetical now but it could be reality in the future,” Anderson said at the hearing’s start. “That means the details really matter here.”

Ultimately, PRBRC failed to convince the council that the properties may have been overvalued or would be difficult for the state to sell. 

Two real estate experts hired to appraise the assets — one by Blackjewel, and one hired by Contura’s lawyers to review the first appraisal — defended their work and the estimates they’d put on the value of the ranch lands. They suggested it would not be difficult for the state to sell the properties if needed. DEQ also argued the state had provided for the cost of sale in its bonding estimates.

The EQC voted unanimously to accept the use of the properties as collateral. 

In a parallel case proceeding in Laramie County District Court, PRBRC is suing the DEQ for release of the appraisal document. DEQ ruled the document was secret after Blackjewel requested confidentiality to protect its business interests. 

At the two-day hearing of the EQC, the appraisal document was submitted as evidence after all the parties in the hearing and the council agreed to a confidentiality order. It was kept hidden from the public and was not posted online with other pieces of evidence in the hearing. 

On Thursday, when the two real estate experts testified about composing the secret appraisal, the parties in the hearing agreed to allow questioning  and discussion of the document. The DEQ did not agree to allow it to be posted on a projector where members of the public could view it. 

DEQ attorney James Kaste said he would object if questioning moved into areas of the document that needed to be kept confidential. 

Kaste did not raise any objections even as the lawyers moved through the document and asked appraisers to read excerpts of the document like, “In the southwestern part of the ranch there are a few operating oil wells and remnants of methane wells.”

This article was originally published by WyoFile and is republished here with permission. WyoFile is an independent nonprofit news organization focused on Wyoming people, places and policy.