Senate President Craig Blair was a special guest star in the House Finance Committee on Saturday, testifying about an insurance program to cover mine reclamation and an avalanche of potential liability.
Blair has felt strongly about Senate Bill 1 and has publicly endorsed it on previous occasions. On Saturday, he took another opportunity to speak before House Finance. Blair, a former member of the House of Delegates, said he felt back at home.
“Here’s the headline: Exposed,” Blair told delegates, showing an article about mine reclamation liability. “West Virginia and other states are relying on a house of cards to pay for coal mining cleanup.”
The House Finance Committee advanced the bill on Saturday afternoon after discussing it for about an hour and a half. The full House of Delegates will now consider the bill.
“It’s clear that we have some serious exposure in our markets and that we are taking clear measures to protect our coal industry and the state,” said Delegate John Hardy, R-Berkeley. “I think this is a proactive way to protect our exposure.”
The bill would establish a mining mutual insurance company on the strength of$50 million in seed money from the state.
Blair assured delegates that the $50 million, a loan, would be secure. “I believe with all my being that we’re not going to lose the $50 million. That’s not going to be the case,” he said.
The insurer would be a bulwark against the possibility that the financial troubles of coal companies could render them unable to meet their obligations to reclaim the land they have mined.
Delegates on the Finance Committee asked a variety of questions, including what financial risk the state faces, how the mutual would work and whether this approach would truly be the best solution.
“As you’ve created this, what is it that leads you to believe the insurance, the bonding market, will not fill the need like the market typically does when there’s a cost problem or an availability problem,” asked Delegate Marty Geartheart, R-Mercer, essentially asking why the state would put up money for an insurance mutual when private companies could do so instead.
Blair’s answer was that economic markets are choosing against coal right now, injecting uncertainty about long-term debt and the kind of capital necessary to clean up mine sites. “The industry has been taking a beating,” Blair said.
Delegate Larry Rowe, D-Kanawha, asked whether other solutions might be more appropriate.
“My concern is, I don’t see how it insulates us from the ultimate responsibility on reclamation,” Rowe said, later voting no.
“And if we use a private bond market, what we’re really doing is we’re stepping into a private bond market that has been teetering. But we’re stepping in with a new company that may help in the market and it may not. Because $50 million won’t cover the liability, as you’ve described it, in the billions.”
Blair’s response to that was this kind of mutual needs to be created now instead of later when it’s a true crisis.
Right now, the state’s Special Reclamation Fund is set up to cover any shortfall, but the worry is that could become overwhelmed by obligations.
The bill establishing the insurance mutual specifies that it would not be considered a department or agency of the state — but instead would be a company governed by five directors. The chairman, though, would be appointed by the governor, and the remaining members would also be named by state officials.
A sense of urgency began last summer after lawmakers heard the summary of a 52-page report laying out the likelihood of mine reclamation as a budget bomb.
In short, West Virginia is subject to federal requirements to have enough money available to complete reclamation for any areas where permit holders default.
West Virginia allows mining companies to post bonds of $1,000 to $5,000 an acre, amounts that the Department of Environmental Protection estimates would cover only about 10 percent of reclamation costs. West Virginia fills the gap with Special Reclamation Funds, which are are funded primarily by a 27.9 cent tax levied on every short ton of coal produced.
Increased reclamation costs combined with economic strain on the coal industry has highlighted the possibility of a financial crisis.
“There is exposure. There’s economic exposure. There’s exposure to the general revenue fund of the state of West Virginia,” said Delegate Daniel Linville, R-Cabell.
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