Johnathan Walker:Blackjewel’s Bankruptcy Filing Is a Harbinger of Trouble Ahead for the Plummeting Coal Industry

A federal bankruptcy judge in West Virginia could Johnathan Walkersoon decide whether to allow the Blackjewel coal mining company, once the nation’s sixth-largest coal producer, to shed responsibility for thousands of strip-mined acres, setting up a potential crisis over clean-up and reclamation of the land.

Bankruptcy Court Judge Benjamin Kahn will hold a hearing Wednesday in Charleston on the West Virginia-based company’s liquidation plan, which calls for the abandonment of nearly 200 mining permits in Kentucky, West Virginia, Virginia and Tennessee. 

Most of them are in eastern Kentucky, where the future of nearly 8,000 acres of strip-mined mountains hangs in the balance, as shown in court filings and testimony in the massive bankruptcy case that began in 2019.

Both the state of Kentucky and the companies that issued bonds guaranteeing clean-up and reclamation of the dynamite-blasted landscape warned in court proceedings that there might not be enough money to do all the required work. 

With other U.S. coal-mining companies in similar financial straits and demand for coal plummeting, Blackjewel’s situation is a harbinger of the trouble ahead in coal country.

Coal mining companies are required to post bonds to cover the costs of reclamation should they go bankrupt. They are also supposed to reclaim idled mine sites contemporaneously, as they are mining new areas. 

As the industry rapidly loses market share and continues its lurch toward the financial abyss, part of its legacy could involve scarred, strip-mined landscapes left behind by serial bankruptcies and government programs that may not be able to step in and finance clean-up and reclamation, environmental and citizens groups fear.

“There just is not the capital left in the coal industry to satisfy all the remaining outstanding reclamation obligations,” said Peter Morgan, a Sierra Club attorney who closely follows coal-industry bankruptcy cases nationally. “These companies have been allowed to kick the can down the road time and time again, and now they are running out of road.”

Morgan said he sees the Blackjewel case as “the tip of the iceberg,” with other major bankruptcies on the horizon. “There will be a lot more Blackjewels,” he said. 

An Industry in Free Fall 

The news just gets worse for the coal industry. Last week, the U.S. Energy Information Agency reported that in 2020, renewable energy sources generated more electricity than coal for the first time. The agency attributed that to the continuing rise of wind and solar power, combined with the steady performance of hydroelectric power.

Coal plants have been closing for years, and the coal industry’s share of the nation’s electricity generation has fallen from nearly 50 percent in 2011 to about 20 percent in 2020. As of last year, there were still about 300 coal plants remaining, but many of those are not operating as much as they previously did, because of costs.

Kentucky has been hit especially hard, with coal production falling 76 percent since 2010, according to Kentucky Energy and Environment Cabinet figures.

From Wyoming to West Virginia, the industry has experienced a series of bankruptcies and consolidations in the last decade.

Blackjewel and its ousted former CEO, Jeff Hoops, had acquired a lot of distressed coal assets shed by other failing companies, but then both became mired in the company’s own financial distress. It filed bankruptcy without warning in 2019, which left 1,700 employees in Wyoming, Virginia, West Virginia and Kentucky without jobs and final paychecks.

The bankruptcy case involves several Blackjewel-affiliated companies, which are now also suing Hoops for alleged self-dealing. Hoops has denied the accusations, according to the Wall Street Journal.

In Harlan County, Kentucky, the Blackjewel workers’ plight drew national attention when miners whose final paychecks had bounced blocked a loaded coal train for weeks, in protest.

Blackjewel workers in Appalachia and Wyoming who had filed a class-action lawsuit to claw back some of their lost wages reached a tentative settlement with Blackjewel last month.

“The great unknown is whether monies will be recouped back from Hoops and his companies,” said Ned Pillersdorf, the Kentucky attorney handling the miners’ claims. “There is complex litigation going on about that. We hope that enough money can be recouped so our clients can collect.”

Lawyers representing Blackjewel did not return emails seeking comment. 

Ashley Burke, a spokeswoman for the National Mining Association, said the industry has “a strong track record in fulfilling its reclamation commitments and those efforts continue.” 

Burke said the Surface Mining Control and Reclamation Act requires companies to post bonds to pay for clean-up and also empowers the states to ensure that mines are remediated and reclaimed. 

“It Looks Like a Bomb Went Off”

Blackjewel has been trying, with some success, to sell its mining assets and reclamation obligations to other companies. 

But it’s not clear how many of those ownership transfers will be allowed by environmental regulators and whether those buyers will ever be able to resume mining or fully reclaim the sites, said Mary Cromer, an attorney and deputy director of the Appalachian Citizens’ Law Center Inc., in Whitesburg, Kentucky, which represents citizens groups in the case.

The whole industry is in distress, and it’s increasingly uncertain what it will leave behind, Cromer said.

“There will be some level of coal industry remaining, but this has been a death spiral,” Cromer said, adding that unreclaimed mines are threatening to become even more serious health and safety problems in the years ahead, she said.

One of Cromer’s clients, Tracy Neece, of Herald, Kentucky, told the court in a sworn statement of a dangerous situation at a property that’s been in his family since the late 1930s. Neece has three rental homes on a mountain in Floyd County below an unreclaimed surface mine run by a Blackjewel affiliate, Revelation Energy LLC, which is also part of the bankruptcy case.

“It looks like a bomb went off,” Neece said of the mined land, which he also owns and had leased to a previous company that had also gone bankrupt. 

“There is a highwall across the property that is at least 30 to 40 feet high. It extends more than a quarter of a mile. It has been six years or more since the highwall was created,” he said. “The silt ponds on the mine site are stopped up and water is not running in its natural course. Instead, the water is just coming down the mountain, cutting its own path and saturating the hillside.”

There are a number of children living in the three rental properties, he said, adding: “I’m worried that the mountain will come down and kill someone.”

With climate change dumping heavier rains, Appalachia’s strip-mined mountains face a growing risk of landslides and flooding, an Inside Climate News investigation found in 2019. Eastern Kentucky has been flooding this week, bringing risks of potentially deadly landslides.

Passing on the Cleanup Costs of “Zombie Mines” 

Kentucky environmental regulators and companies that hold reclamation bonds have been fighting the abandonments. In a court hearing last week, Kentucky Energy and Environment Cabinet attorneys  asked the judge to intervene at one mine, which they said was so unstable that it presented an imminent risk to the public.

A Blackjewel lawyer argued there was no such threat.

Judge Kahn ordered Blackjewel to dig out some pond sediment but rejected the state’s request for further stabilization work there. The state warned of potential washouts damaging roads and polluted water tainting drinking water wells.

Kentucky state officials have said in court that the reclamation bonding may not be sufficient because of the poor condition of the properties. In one filing, the state cabinet took exception to claims by the debtors that they will through bonding provide adequate public health and safety protections if they are permitted to abandon their permits. 

“This could not be further from the truth,” the state’s lawyers wrote. “Due to Debtors’ utter failure to abate violations and maintain conditions on their permits, the bonds meant to cover reclamation costs are substantially inadequate on many of the permits.”

The Indemnity National Insurance Co. took a similar approach when it argued against allowing Blackjewel to abandon its permits in a Jan. 11 filing. The company said it had issued $170 million in reclamation bonds on behalf of the company, covering nearly 200 mining permits.

Regulatory authorities have “issued hundreds of notices of violations, cessations orders, and determinations of bond forfeiture,” the lawyers for the insurance company wrote. “Despite generating more than $68 million in cash proceeds from post-petition sales, (Blackjewel has) undertaken no meaningful efforts to abate these violations or to ensure their future legal compliance.”

The company and its affiliates should not be allowed “foist their primary obligation to reclaim onto the sureties and the regulatory authorities,” Indemnity National wrote. 

There also are concerns that taxpayers could be at risk.

Kentucky chose not to require full-cost bonding and instead relied on a bond pool as a backup, which it was allowed to do under federal law, said Joe Pizarchik, a lawyer from Pennsylvania who, during the Obama administration, ran the Office of Surface Mining and Reclamation, the agency that oversees enforcement of the 1977 surface mining law.

But, he said, “that was a political decision to subsidize the industry.”

If that bond pool does not have enough money to pay for reclamation, then the state has the legal obligation to come up with reclamation plans and find the funds to pay for reclamation, Pizarchik said.

Other states have similar funds, said Morgan, the Sierra Club attorney, but they all are based on an expectation that mine abandonments “would be rare and not tied to any industry-wide issues.”

Cromer said one of the problems is that too many mining sites across Appalachia, not just those affiliated with Blackjewel, have been sitting idle for years amid the distress of the industry.

“We refer to them as zombie mines,” she said.

“For people who are living below these sites, they know what happens when it rains,” she said, noting that it is now the rainy season in the mountains. “There is a sense of urgency there.”