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Patriot, environmentalists reach 'agreement in principle'

HUNTINGTON, W.Va. -- In a move that could help it emerge from bankruptcy, Patriot Coal has reached an "agreement in principle" with environmental groups concerning its massive liability for cleaning up selenium pollution from mountaintop removal mines in West Virginia, a federal judge was told Thursday.

Lawyers for Patriot and the Ohio Valley Environmental Coalition provided U.S. District Judge Robert C. Chambers no details of their deal, but said they expect to make a public announcement within a month.

The agreement apparently was reached after extensive private negotiations in which "the parties have discussed a range of options that might be considered during Patriot's reorganization," court records show.

Patriot already was under court order to begin treating selenium at one mining operation and, in January, agreed to a broader settlement with citizen groups that covered two other mountaintop removal complexes.

Court records show the two sides have been negotiating "several issues," including changing timelines for eliminating selenium violations and Patriot's "broader obligations" under its selenium settlement.

During a Thursday morning hearing in Huntington, Joe Lovett, an Appalachian Mountain Advocates lawyer representing the citizen groups, said his clients, including the West Virginia Highlands Conservancy and the Sierra Club, have approved the agreement.

Patriot's governing board approved the settlement, Lovett told Chambers, but several of the company's banks and "other stakeholders" still need to be briefed before details can be discussed publicly.

Lovett said Patriot plans to bring its president and chief operating officer, Ben Hatfield, to court sometime within the next 30 days to help the judge "understand the impact" of the agreement.

Word of the tentative deal comes a week after Patriot increased by more than $300 million its stated liability for selenium treatment costs, according to corporate disclosures filed with the U.S. Securities and Exchange Commission.

At the end of 2011, Patriot listed its selenium liabilities as $196 million. In a quarterly filing on Aug. 9, Patriot added another $307 million to that amount. After accounting for accrued expenses, the company's reported selenium treatment liability was listed as $440 million.

Last month, St. Louis-based Patriot filed for bankruptcy court protection while it attempts to reorganize, amid one of the toughest coal markets in years.

Coal's share of electricity generation in the United States is dropping as mine operators face much tougher competition from cheap natural gas supplies. Production in West Virginia is down this year, and while employment has risen over the past three years, it is down in 2012, with most major operators announcing significant layoffs.

In its bankruptcy filing, Patriot singled out its selenium treatment costs as an example of "more burdensome environmental and other government regulations," saying its treatment costs were running into "hundreds of millions of dollars."

Selenium, a naturally occurring element found in many rocks and soils, is an antioxidant needed in vary small amounts for good health. In slightly larger amounts, selenium can be toxic. Selenium impacts the reproductive cycle of many aquatic species, can impair the development and survival of fish, and can damage gills or other organs of aquatic organisms subject to prolonged exposure. It also can be toxic to humans, causing kidney and liver damage, as well as damage to the nervous and circulatory systems.

In 2003, a broad federal government study of mountaintop removal mining found repeated violations of water quality standards for selenium. The following year, a U.S. Fish and Wildlife Service report warned of more selenium problems downstream from major mining operations. One report from a top selenium expert has warned the pollution from Patriot's Hobet 21 site has left the Mud River ecosystem "on the brink of a major toxic event."

Another study, published in December in the prestigious Proceedings of the National Academy of Sciences, also pointed specifically to serious selenium violations downstream from Patriot's operations in the Mud River watershed.

In its bankruptcy filing, Patriot has complained about "substantial and unsustainable legacy costs," related to pension payments and health-care benefits for retired United Mine Workers union members.

Patriot noted that while only 11 percent of the nation's coal miners work under UMW contracts, 42 percent of Patriot's miners work under such agreements.

In the company's court filings, Patriot chief financial officer Mark Schroeder noted that the company is responsible for benefits to more than three times the number of retirees as it employs as active miners.

Most of those UMW retirees came from Peabody Coal, from which Patriot was formed in a corporate spin-off transaction in 2007, or from Magnum Coal, an Arch Coal spin-off company that Patriot bought in 2008.

UMW officials say Patriot has 2,000 active union members in West Virginia and Kentucky, along with more than 10,000 retirees and an additional 10,000 dependents, most of them in West Virginia, Indiana, Illinois, Kentucky and Ohio.

Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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