Cantwell, Durbin to GAO: Investigate Self-Bonding by Coal Companies

Sens. Cantwell and Durbin Request Investigation by the Government Accountability Office Related to Self-Bonding

March 8, 2016

Read the request letter here.

Washington, D.C. – Today, Ranking Member of the Senate Energy and Natural Resources Committee U.S. Senator Maria Cantwell (D-Wash.) submitted a request to the U.S. Government Accountability Office (GAO) to investigate self-bonding by coal companies with U.S. Senator Dick Durbin (D-Ill.). Given a series of high-profile bankruptcies by coal companies, the senators are concerned about the significant risk to the taxpayer of paying for outstanding reclamation and believe the Interior Department and Congress should re-visit the ability of companies to self-bond as financial assurance for authorization.

The Surface Mining Control and Reclamation Act (SMCRA) requires coal companies to ensure that they can cover the cost of reclamation: rehabilitating land after coal mining operations on it have stopped. The law allows the Interior Department and state agencies to accept reclamation performance bonds from coal mining companies without separate surety, known as “self-bonds.” But the law does not require the acceptance of these bonds and some states do not allow their use.

Companies currently operating coal mines under SMCRA have posted an aggregate of $3.6 billion of self-bonds across multiple states.

At a recent hearing before the Energy and Natural Resources Committee, Interior Secretary Sally Jewell acknowledged that “there’s a very significant problem and risk to the taxpayer with high-profile bankruptcies that have taken place recently with coal companies.” The Interior Department has filed concerns and reservations of rights in multiple bankruptcy proceedings. Given these recent developments and the scale of other companies’ self-bonding, Sens. Cantwell and Durbin believe “the department and Congress should re-visit SMCRA’s self-bonding authorization.”

After all, extractive industries often lack diversified lines of business. And the current eligibility test for self-bonding evaluates a firm’s historic and current financial condition – often failing to account for rapidly changing market conditions common to commodity markets.

Furthermore, the core competency of federal and state regulators is generally not financial analysis. By accepting self-bonds, the burden of evaluating private companies’ financial health is placed on the government.

GAO has extensive experience examining financial assurance requirements and practices in many industries. For example, in 2011, GAO testified that the Bureau of Land Management (BLM), the Forest Service, the Environmental Protection Agency and the Office of Surface Mining Reclamation and Enforcement – four key reclamation and cleanup agencies – had spent at least a total of $2.6 billion to reclaim abandoned hardrock mines on federal, state, private and Indian lands.

Taxpayers may face even larger liability for coal mines.

Sen. Cantwell and Sen. Durbin requested a two-part investigation from GAO on self-bonding by coal companies:
1.    A comparison of authorizations to self-bond and related practices across federal programs that govern resource extraction and
2.    A performance audit of self-bonding under SMCRA.

In late February, Sen. Cantwell questioned Secretary Jewell about the practice of self-bonding, urging the Interior Department to consider ending it – much like BLM did with hardrock mining.

Read the request letter to GAO here.
Read a recent editorial from The Seattle Times on federal coal policy.