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Massey avoids major financial hit for spill

When West Virginia regulators sued Massey Energy for a huge slurry spill in Martin County, Ky., their goals were clear.

First, they wanted to reimburse state agencies for the time and money spent responding to and cleaning up the spill, which polluted West Virginia streams along the border with Kentucky.

Second, lawyers for the state Department of Environmental Protection wanted to punish Massey. DEP sought civil penalties for water pollution violations. In their June 2001 lawsuit, they also asked for punitive damages “in an amount sufficient to deter in the future” similar actions by the company. Trial had been scheduled to start Tuesday.

Last week, DEP announced that it had settled the case for $600,000. The money is enough to reimburse most of the agency’s costs, but it is also far, far less than the millions DEP officials had hoped for.

The state got no civil penalties and no punitive damages.

Wayne Circuit Judge Darrell Pratt blocked the state from seeking civil penalties. He said West Virginia regulators could not fine a company for a spill that started in Kentucky. DEP lawyers say the judge also hinted that he would not let them seek punitive damages if the case went to trial.

Will paying the $600,000 in state expenses be enough to deter Massey from further impoundment failures, slurry spills and water pollution?

“You’d probably have to ask the company if it would deter them,” said Perry McDaniel, chief of the DEP Office of Legal Services. “I would hope that it would.”

Jeff Gillenwater, Massey’s Charleston-based press spokesman, hasn’t returned repeated phone calls seeking comment on the settlement.

Katharine Kenny, the Richmond, Va.-based company’s director of investor relations, declined to discuss the settlement.

“I’m unable to comment,” Kenny said. “It’s not a financial matter, so it’s not me.”

In its disclosures to stockholders, Massey has said that none of the spill costs — including a new criminal probe — are expected to have a “material effect” on the company’s finances.

At the same time, federal probation officers alleged that Massey subsidiary Independence Coal Co. has violated the terms of its supervised release by causing more blackwater spills in Boone County streams. The company pleaded guilty to criminal Clean Water Act violations for previous spills.

The Martin County spill occurred on Oct. 11, 2000, at Massey subsidiary Martin County Coal Corp.’s Big Branch Impoundment near Inez, Ky.

Slurry, a mix of coal waste, water and treatment chemicals, broke through the impoundment wall into an adjacent underground mine.

An estimated 306 million gallons of the black, gooey sludge drained from the impoundment. That’s 28 times the amount of oil spilled into Alaska’s Prince William Sound in March 1989 by the Exxon Valdez.

About 245 million gallons of slurry poured out of the underground mine into two nearby streams. The rest stayed in the mine.

Near the spill site, lawns were buried by up to 7 feet of sludge. Eventually, the slurry made its way into the Tug Fork of the Big Sandy River and the Ohio River. More than 75 miles of streams were damaged, according to federal reports.

Investigators from the federal Office of Surface Mining found that Massey greatly overestimated the amount of rock barrier between the impoundment and the underground mine.

In a March 2002 report, OSM said that the breakthrough occurred when water and slurry seeped through the barrier at the southwest corner of a 50-foot-long, dead-end underground mine entry on the northwestern end of the impoundment.

OSM and the U.S. Mine Safety and Health Administration agreed that Massey ignored warnings signs of the breakthrough and did not take proper steps to avoid a repeat of a smaller breakthrough in 1994. In an internal review, MSHA also found that its own staff ignored warning signs and did not take proper steps to avoid the disaster.

In Kentucky, Massey did agree to pay $3.25 million in fines and damages, an amount state officials say was a record for coal-related environmental penalties.

Massey and the Kentucky Natural Resources and Environmental Protection Cabinet agreed to $1.75 million in civil penalties, $1 million for environmental damages, and $500,000 in response costs. In a separate deal, Massey paid $225,000 in damages to the Kentucky Fish and Wildlife Service.

On the federal level, the EPA has taken no enforcement action against Massey for pollution of the nation’s waters.

“I think we deferred to the state,” said Carl Terry, a spokesman for EPA’s regional office in Atlanta.

OSM also deferred to Kentucky, which has primary authority to police strip mining within its borders.

MSHA cited Massey for two serious mine safety violations, and fined the company $110,000.

But in August, a federal administrative law judge threw out one of those two citations. MSHA has not indicated whether it will appeal.

Earlier this year, Massey disclosed to its stockholders that a federal prosecutor in Eastern Kentucky has launched a criminal investigation of the spill. Prosecutors have refused to comment.

In March 2001, EPA reached an agreement with Massey that required the company to pay to clean up the spill damage.

Through June 30, 2003, Massey reported that it had paid $58.8 million of cleanup costs related to the spill, according to financial disclosures filed with the U.S. Securities and Exchange Commission.

Of that, about $52.5 million has been paid directly or reimbursed by insurance companies.

Massey has also settled with one of its insurers a claim for $21 million in coverage for profits lost while the Martin County operation was closed after the spill.

Massey also announced in February that it had settled civil cases covering “nearly all of the remaining plaintiffs” who sued the company for damages caused by the spill.

“It is another important and positive step towards final resolution of all the matters related to the Martin County slurry spill,” Massey CEO Don Blankenship said at the time.

In SEC filings, Massey assured stockholders that lawsuit costs are also being covered by insurance policies.

“Most of the claims, fines, penalties and lawsuits from the impoundment failure have been satisfied or settled,” the company said.

“Massey continues to seek insurance reimbursement of any and all covered costs.”

In the West Virginia case, Massey will write two checks.

One will reimburse the state Division of Natural Resources for all but $600 of its response costs and aquatic life damages. The other will pay DEP for all but $30,000 to $50,000 of its response costs.

In all, DEP will get $316,000 and DNR $284,000 of the settlement.

DEP Secretary Stephanie Timmermeyer said she doesn’t know if those payments will deter future Massey environmental violations.

“That’s something that the company needs to answer,” Timmermeyer said. “We’re charged with regulating this industry and bringing appropriate enforcement actions, and we’re prepared to do that.”

To contact staff writer Ken Ward Jr., use e-mail or call 348-1702.


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