Energy and Environment Monitor

New Suit Claims WVDEP Failed to Inform OSM of Potential SRF Funding Shortfall

July 15, 2020

By: Chris M. Hunter

Three anti-mining organizations - Ohio Valley Environmental Coalition, West Virginia Highlands Conservancy, and Sierra Club (collectively “Plaintiffs”) - sued the West Virginia Department of Environmental Protection (“WVDEP”) for failing to notify the federal Office of Surface Mining (“OSM”) of a significant change in funding or budgeting concerning WVDEP’s ability to manage its federally-approved surface mining program. The suit centers mainly upon the recent insolvency of ERP Environmental Fund (“ERP”).

Legal Framework 

States with approved surface mining programs under SMCRA must “implement, administer, enforce and maintain” its program in accordance with the Act.  30 C.F.R. § 733.11. SMCRA requires that permittees post a bond to cover the cost of reclamation through either a full-cost bond, or through an “Alternative Bonding System” (“ABS”).  See 30 C.F.R. § 800.11. West Virginia’s approved program uses an ABS consisting of (1) a Special Reclamation Fund (“SFR”), which is funded by a special tax of 27.9 cents per ton of clean coal mined (W.Va. Code § 22-3-11(i)(1)(B), and (2) a site-specific bond, which is capped at $5,000 per acre. W.Va. Code § 22-3-11. If WVDEP forfeits a bond, and the site-specific bond proceeds are insufficient to complete reclamation, WVDEP may withdraw money from the SRF in order to complete reclamation. W.Va. Code § 22-3-11(g). OSM’s SMCRA regulations require state regulatory authorities to “promptly notify the Director [of OSM], in writing of any significant events or proposed changes which affect the implementation, administration, or enforcement of the approved state program,” which includes “[s]ignificant changes in the funding or budgeting relative to the approved program.” 30 C.F.R. § 732.17(b).

ERP Receivership

In March 2020, WVDEP filed an action in Kanawha County Circuit Court to place ERP into receivership and have a special receiver appointed in order to complete reclamation of ERP’s permits. Plaintiffs characterize WVDEP’s filings in the receivership action as establishing the following:

• ERP is insolvent, having laid off all its employees, ceased operations, and currently lacking a cash source or other assets to complete reclamation and water treatment at its mines;
• ERP has over 100 mining permits, which have accrued hundreds of violations;
• ERP’s $115 million in reclamation bonds are inadequate to cover its estimated $230 million in reclamation;
• WVDEP is uncertain as to whether ERP’s surety bond provider can afford to pay out the full $115 million;
• WVDEP’s SRF funds would be completely depleted if they were used to cover the difference between ERP’s available bonds and ERP’s reclamation and water treatment costs.

Plaintiffs also claim that several other large coal companies are either insolvent or face an imminent threat of insolvency: Murray Energy, Revelation Energy, and Southeastern Land LLC.

WVDEP Letter to OSM

On July 8, 2020, WVDEP notified OSM that it had taken actions to address ERP’s financial situation, characterizing its petition to appoint a special receiver rather than forfeiting bonds as “alternative enforcement … [that] positively affected the State’s program by compelling … performance” and reducing “some of the reclamation obligations that might ultimately end up in the Special Reclamation Fund in the future.” WVDEP also noted that, “due in part to recent changes in the coal market, WVDEP and the Special Reclamation Fund Advisory Council are examining options for financial assurances required by the program,” but the agency did not elaborate.  According to Plaintiffs, WVDEP’s letter was insufficient to serve as the notice required by 30 C.F.R. § 732.17(b). Rather, the events outlined in their Complaint required WVDEP to notify OSM under 30 C.F.R. Part 732 of a significant change in the funding of West Virginia’s approved surface mining program, specifically a funding shortfall. By failing to do so, Plaintiffs claim that WVDEP violated a nondiscretionary duty under a regulation issued pursuant to SMCRA.

Claims for Relief

Plaintiffs’ suit requests that the Court declare that WVDEP failed to perform a non-discretionary duty by not notifying OSM of significant events that affected West Virginia’s approved program under SMCRA and that the Court order WVDEP to implement and administer its program in accordance with SMCRA with regard to the bonding of coal mines (which may ultimately only result in an order to WVDEP to send formal notice to OSM under 30 C.F.R. Part 732 of a significant change in the funding to the SRF).