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Ky. regulators: Blackjewel, affiliates racked up 30% of violation notices issued

The Kentucky regulators responsible for enforcing federal mining laws informed a bankruptcy court that Blackjewel LLC and affiliate Revelation Energy LLC account for about 30% of the state's total outstanding noncompliances issued.

Blackjewel and Revelation both filed for Chapter 11 bankruptcy protection in July, and the latter has since received bankruptcy approval to sell or transfer many of its assets. More recently, Blackjewel, its affiliated debtors and the official committee of unsecured creditors requested that the court investigate former company President and CEO Jeff Hoops. They claim Hoops transferred tens of millions of dollars worth of assets to benefit his interests over several years.

The Kentucky Energy and Environment Cabinet, which enforces the Surface Mining Control and Reclamation Act, said Revelation Energy had 157 outstanding notices of noncompliance out of the state's total 547 issued as of Dec. 31, 2019, according to a Jan. 13 filing with the U.S. Bankruptcy Court for the Southern District of West Virginia. The company is also responsible for 234 cessation orders, 171 penalty assessment conferences and 59 administrative hearing cases, the cabinet said.

By the debtors' petition date, they still had 97 outstanding notices of noncompliance and 24 outstanding cessation orders, which contradicts claims that the companies have worked to address the violations, according to the filing. Since their petition, the debtors abated 12 notices of noncompliance while racking up 65 new ones as well as 215 new cessation orders, the cabinet said.

In a letter filed Dec. 17, 2019, the debtors' counsel wrote that the companies worked with state environmental, permitting and reclamation agencies in Virginia, West Virginia and Kentucky to monitor and address citations "as their limited resources have allowed." The debtors also claimed they "have worked diligently to avoid or abate problems as they become critical."

"The vast majority of the permits where issues were raised have now been sold and the permits are in the process of being transferred to the various buyers, which typically takes at least thirty days," counsel said.

Citing the roughly $19.9 million in cash on hand reported by the debtors in an October 2019 monthly operating report, the regulators refuted the claim that the coal producers do not have the money to fulfill their reclamation duties. The cabinet also said the money must be used to meet the environmental obligations.

While the debtors have also claimed that they reduced their bonded exposure from $520 million to $80 million in asset sales, the regulators contend that only one permit transfer application had been submitted to the state as of Jan. 13. A mine or permit sale without a "valid permit transfer" does not alleviate reclamation liabilities, the regulators said, noting that the debtors still have about $164 million in bonded liability with the state.

Last month, the cabinet also determined that reclaiming about one-fifth of the debtors' permitted land would likely surpass the bonded amount by about $38 million "due to current on-the-ground conditions."

"The cabinet remains willing to work with debtors and those parties purchasing Kentucky permits from the estates, but unfortunately, there has been no meaningful effort by debtors to resolve the environmental liabilities that remain the responsibility of the estates. ... The cabinet has serious concerns regarding both the reclamation liability and the prospect of correcting the numerous environmental violations incurred by debtors," the filing stated.

Various conservation groups filed a letter with the court Dec. 16, 2019, claiming that several of the debtors' mines contribute to acid mine drainage pollution in Kentucky, West Virginia and Virginia waterways. Those properties may be abandoned, "leaving serious questions about abatement of these violations and reclamation of these mines," the cost of which would likely be shifted to taxpayers, they said.