Self Bonding For $2.7 billion in Closure Costs Could Translate to Public Liability Federal Lawmakers Fear

http://www.businessinsurance.com/article/20150625/NEWS06/150629912?tags=58|310|83|80|61

This article reports a re examination of the public liability implications of U.S. federal policy allowing “self bonded” financial closure for coal miners. The issues raised are obviously also relevant for metallic mining  under regulatory requirements for financial assurance for closure  which also  allow “self bonding”

Accoridng to this Business Insurance article:

“The country’s four largest coal companies — Peabody Energy, Alpha Natural Resources, Arch Coal and Cloud Peak Energy — together have about $2.7 billion in clean-up costs covered by self bonding, according to securities filings and regulators.”

(This is not for clean up after a failure this is for closure at conclusion on mining operations at a given site underpermit should the miner abandon or otherwise become unable to perform the closure and associated “clean up” )

Closure bond requirements for the Pebble mine would have been close to $1Billion.

Responding to the federal re examination of its “self bonding” policy, Fitch Ratings Inc. estimates that if tighter and better financial assurance for closure were required, as presently being considered by federal law makers, it could actually bankrupt or seriously impair miners and also have a de stabilizing influence on the industry possibly  precipitating a wave of failures.

“Last week, Fitch Ratings Inc. warned that tougher rules for self-bonding could push leading coal companies closer to bankruptcy. ‘Tighter self-bonding requirements for distressed coal entities would reduce liquidity and could hasten restructuring,” Fitch Ratings wrote.'”

The details of the “tighter requirements” aren’t included in the Business Insurance article  but presumably  deal with how the “self bonding” is treated “on the books” and/ or how the funding works ( trust account, segregated audited account,  other methods which encumber the “self bonded” in the same way that a formal corporate self insured retention would,  or which create a legally binding site specific encumbrance of the bonded amounts surviving bankruptcy..

In other words Fitch is saying that the  “self bonded” companies are not actually strong enough  financially to back the $2.7 billion already under approved “self fundied”bonds.

Federal lawmakers are rightly concerned that this already incurred $2.7 billion in “self bonded ” financial assurance for closure costs  may be in large part an existing unfunded unfundable public liability.

The issue when liabilities reach a level of being un fundable for something as basic and essential as having financial assurance for a stable and safe mine closure,  is not a funding problem it is a problem with the way mines are vetted in the fist place, who applications are accepted from and how financial feasibility of mine and financial viability of operator are monitored life of mine by independent experts in mine economics and mine finance.

The Federal government is looking down the same black hole on how much of this $2.7 billion is actually there as Bowker Chambers 2015 point to (1). How will this $2.7 billion be re-financed if the industry itself is not capable of funding/financing its liabilities with greater accountability to availability of the funds should they be required for closure? 

Were these companes actually financial capable of guaranteeing the availability of these funds in the event of a bankruptcy  or abandonment prior to closure at the time the applications were under review?  Every mine statute we have looked at requires a determination of the “financial and technical capacity of the applicant” but none we have seen actually have a rigorous or even reasoned set of standards for vetting that The real issue is  that the miner and the financial capacity of their mines may not have  existed when the mine permits were issued and there was nothing built into the regulatory framework to make that determination.

Although a performance bond is a fundamentally different instrument from insurance ( in that it comes into play only when the company cannot  or will not perform) there is nothing inherently wrong with self bonding just as there is nothing wrong with a formally created self insured retention program.  But there is something inherently wrong with a system that approves self bonding for companies that are actually not capable  of making good on that should the bonds have to called on. The whole nature of a “performance bond” is to guarantee performance when the  company fails to perform for any reason.  That requires a very different structure and legal mechanism to guarantee availability of the funds outside of bankruptcy or financial impacts on the company as a whole should the bonds be called.

All of this argues for independent expert panels in mine economics and mine finance to create  financial capacity, financial assurance standards in the first place ; vet  applicants and the mineralized assets pre-application, and monitor state of both mine feasibility and miner financial capacity life of mine.

To do otherwise  essentially makes the local community the ultimate underwriter .

The answer as Bowker Associates has long argued is better standrds on the financial capacity of the appliants pre mining and better vetting on the catual economic feasibility of the endeavor INCLUSIVE OF CLOSURE COSTS AND OF ALL OTHER ESSENTIAL ENVIRONMENTAL MEASURES/TECHNOLOGIES LIFE OF MINE.

Lindsay Newland Bowker, CPCU, ARM Environmental Risk Manager

Bowker Associates

Science & Research In The Public Interest

15 Cove Meadow Rd.

Stonington, Maine 04681

207 367 5145

lindsaynewlandbowker@gmail.com

lindsaynewlandbowker.wordpress.com

ADDITIONAL LINKS & DEVELOPMENTS

Landowners Group  demands that  Wyoming DEQ rescind self bonding status of Peabody to insure  public claim on closure funds is protected as Peabody heads to bankruptcy court http://www.wyofile.com/blog/landowner-group-claims-peabodys-790m-self-bond-invalid/

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About lindsaynewlandbowker

Bowker Associates, Science & Research In The Public Interest, is an independent non profit providing self initiated pro bono analysis on key issues with a potential for massive adverse environmental impact . Bowker Associates has been an internationally recognized and cited voice in analysis of the Samarco failure, its consequence, and the possibilties for recovery. In 2015 Bowker Associates collaborated with globally respected geophysicist David M. Chambers to recompile global authoritative accounts of significant TSF failures in recorded history and to analyze these data in the context of gloal mining economics 1910-2010 ( Risk, Economics and Public Liability of TSF Failures, Bowker/Chambers July 2015) In 2014 Bowker Associates commissioned globally respected geophysicist and hydrogeologist Dr. David Chambers to undertake two technical works: (1) development of technical go no go criteria for vetting mine applications tp://lindsaynewlandbowker.wordpress.com/2014/01/05/a-new-statutory-regulatory-framework-for-responble-sulfide-mining-should-this-mine-be-built/ and (2) a case study of Maine's Bald Mountain, an un mined low grade high risk VMS deposit demonstrating the efficacy and accuracy of two risk assessment tools in vetting mine proposals https://lindsaynewlandbowker.wordpress.com/2014/02/28/mountain-x-would-you-issue-a-permit-to-this-mine/ In Maine, Bowker Associates has deeply engaged and been a public voice in the Searsport DCP LPG Tank, The Cianbro proposal for a Private East West Toll Road, JD Irvings rolling pipeline of Bakken crude to its plant in St. John and review of Phase II plans at The Callahan Superfund site in Brooksville, Maine, and Maine's revisitation of mining in statute and regulation... Our only “client”: is always “the pubic interest”. Our model is to focus on only one or two issues at a time so that we have a substantive command of the relevant field as our foundation for ongoing engagement. Our core work is in envirommental risk management, science and technology as well as bringing any available “best practices” models to the fore. The legal and regulatory history/best models are also a major thrust of our work in building and evaluating public policy. Director/Principal Lindsay Newland Bowker, CPCU, ARM is a recognized expert in Environmental Risk Management., Heavy Construction Risk Management and Marine and Transit Risks and has more than 3 decades of engagement in buiding public policy. Appointed by Governor Mario Cuomo to New York State Banking Board (served 1986-1996); President New York Chapter Chartered Property and Casualty Insurers; Environmental Committee, Risk and Insurance Management Society; Director, Convenor/Co-Chair Bermuda Market Briefing "From Captive to Cats" Hamilton Bermuda. Published Articles of Significance The Risk Economics and Public Liability of Tailings Facility Failures, co-authored with David M. Chambers, July 2015 Beyond. Polarization: Superfund Reform in Perspective, Risk & Insurance Managing Risk For Loss Prevention & Cost Control (Jan. 24, 1997). Lead Hazards and Abatement Technologies in Construction: A Risk Management Approach CPCU Journal 1997 Employee Leasing: Liability in Limbo Risk Management June 1 1997 Environmental Audit Privilege and the Public interest Risk & Insurance Managing Risk For Loss Prevention & Cost Control, April 1997 Asbestos:Holes In Abatement Policies Need To Be Plugged, Lloyd’s Environmental Risk International, May 1993 Editor Published Letters Evironmental Risk Management Beware of Facile Policies Like Fetal Protection Business Insurance 1995(?) High Court Review May Increase Sale of Bank Annuities Business Insurances August 8, 1995 Professional Profiles Protecting the Big Apple’s Core Managing Risk For Loss Prevention & Control December 1996 Major Career Highlights First rigorous analysis showing Relationship Between declining ore grades and TSF Failures of increasing consequence ( July 2015) FIrst Documentation that Gentrification Has Same Impacts as Unassisted Displacement from Urban Renewal Sites Direted Court Ordered EIS of FHA Mortgage Scandal Created Nation's First Homeownership Program for Low Income People (SHIP) Created Earliest Geographic Information Systems Using Defense Technology Developed By IBM Designed and Conducted Parallel Census Count to Show Systematic undercount in minority neighborhoods Documented Bias in ISO Territory Rating Plans for Private Passenger Auto Insurance Using ISO's own Rating Techniques Demonstrated Inherent Bias in Mortgage Policies of Banks With Inner City Branches Demonstrated that NY Telephones Plan for Area Code Split To accommodate anticipated cell phone demand was not efficient and would exhaust in 5 years ( which it did) Undertook First Systematic Evaluation of Child Protective Services Caseload Using Multi Variate Analyic Techniques Developed Child Protective Caseload Management and Tracking System (CANTS) and directed implementation in 4 client states including Illinois, Florida and New York Created and Ran Office of Risk Management for NYC DEP the Nations largest Water & Sewer Authority . Designed, Created and Administered Nation's First Owner Controlled Insurance Program (OCIP)for High Risk Tunneling Education Masters NYU Graduate School of Public Administration BSC New School For Social Research Maine Public Schools Deering High School
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