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Mine cleanup funds at risk as coal power suppliers lose customers

The defection of local electric cooperatives from a Colorado power wholesaler could imperil cleanup funds for coal mines in two Western states, according to an environmental group’s complaint to federal regulators.

Tri-State Generation and Transmission operates mines in Colorado and Wyoming. If the company were to close or abandon them, environmental reclamation is to be paid for in large part with $133 million in “self-bonds,” which are guaranteed by Tri-State but not backed by any bank, insurer or other third party.

That has some observers on edge as several Tri-State customers consider leaving it in search of cleaner, cheaper power. Other wholesale electricity providers that are still committed to fossil fuels face similar risks.

“It’s not unrealistic to think that a bad case could be something like a utility ‘death spiral’ but at the G&T level,” said Mark Dyson, a principal in the Rocky Mountain Institute’s electricity program.

Under that scenario, high electricity prices caused by overreliance on coal would cause co-ops to exit their relationships with Tri-State, forcing it to shift costs onto remaining customers by further increasing prices. That pattern could leave it unable to make good on promises to clean up coal mines.

Cleanup insurance
The environmental reclamation of the U.S. coal industry is backed by bonds, which take the form of cash, insurance policies or other guarantees that rehabilitation will occur even if a company abandons a mine. Nationwide, close to $10 billion is held in these bonds.

Self-bonds held by utility companies or other entities in the electricity industry account for $815 million of that, more than 8 percent. These guarantees are backed neither by cash nor by third parties, and environmentalists, researchers and federal agencies have decried them as likely to fail.

Just less than half of Tri-State’s overall electricity portfolio, both generated and purchased, comes from coal, and 30 percent comes from renewables. According to SEC filings, the vast majority of what Tri-State directly generates comes from fossil fuels.

Tri-State is also looking to open a new cut in its Colowyo Mine in Colorado, which Boughey said would provide up to 35 years of coal. In January, Colorado accepted a $15 million increase in Tri-State’s self-bonds for Colowyo.

Tri-State spokesperson Lee Boughey said self-bonds for these mines are cheaper than alternatives because there are no premiums, and Tri-State will continue to use them.

“We are highly sensitive to anything that can increase our cost,” Boughey said.

An official with Colorado’s Division of Reclamation, Mining and Safety is comfortable with self-bonding Colowyo in part because all the coal is shipped to and burned at a Tri-State power plant. “So, it’s a little bit different in that there’s a level of security that a mining company doesn’t have,” said Jim Stark, the division’s coal program director.

Vulnerable guarantees
Meanwhile, though, customers are paying more for power — financial documents show that over the past seven years, the amount member organizations paid per kilowatt hour increased about 17 percent — and more are beginning to look elsewhere to buy cheaper, renewable power.

In a report published in April, Moody’s Investor Service analyzed generating stations around the country, including five from Tri-State, and found that all five were “vulnerable” to being replaced by natural gas and renewables due to high operating costs.

“We feel like [self-bonding] is somewhat of a fiction to begin with,” said Jeremy Nichols, climate and energy program director at the Western-focused environmental advocacy group WildEarth Guardians. “But [at Tri-State] it’s even worse.”

WildEarth Guardians submitted a citizen complaint to the federal Office of Surface Mining Reclamation and Enforcement on April 2, alleging that Tri-State “does not appear to currently guarantee the full amount of these self-bonds” because it does not acknowledge the full extent of these bonds in its financial statements.

On May 16, OSMRE responded, denying the request after soliciting input from Colorado’s and Wyoming’s relevant agencies and finding “no regulation or general accounting guidelines require a guarantor to list self-bond obligations as liabilities on its reports.”

WildEarth Guardians has since appealed and is waiting on OSMRE’s response.

OSMRE did not respond to requests for comment on its self-bonding policies or on the citizen complaint.

Read full article at Energy News Network