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Patriot selenium deal falls through

CHARLESTON, W.Va. -- A deal that might have helped bankrupt Patriot Coal manage its huge liability for cleaning up selenium pollution from mountaintop removal mining operations has fallen through, federal court records have revealed.

Lawyers for Patriot and the Ohio Valley Environmental Coalition told U.S. District Judge Robert C. Chambers on Wednesday that "there had been a breakdown in negotiations" toward finalizing their agreement.

Lawyers briefed the judge on their impasse during a status conference held by telephone call Wednesday afternoon, court records show.

The development comes about a month after lawyers for Patriot and environmental groups told Chambers they had reached an "agreement in principle" concerning the company's massive liability for treating selenium runoff from mountaintop removal complexes in Southern West Virginia.

A deal was viewed as a way to help Patriot better structure how it covers "hundreds of millions of dollars" -- by one estimate $440 million -- in outstanding liability for selenium cleanup costs.

In July, St. Louis-based Patriot filed for Chapter 11 bankruptcy and its reorganization efforts have prompted major concerns from the United Mine Workers that the company will try to use the process to avoid an estimated $1.3 billion in liability for retiree pensions and health-care benefits.

UMW officials say that Patriot was "created to fail," as a way for Peabody Coal and Arch Coal, the two companies from which Patriot was formed, to ditch their own union pension and health-care liabilities.

Five years ago, Peabody formed Patriot as a spin-off company where Peabody tucked union mines in West Virginia and the Midwest, along with pension and health-care obligations for union retirees. Patriot later bought another company, Magnum Coal, which had been similarly spin-off by Arch Coal when it got rid of most of its Appalachian operations and their related pension and health-care liabilities.

Patriot employs about 2,000 active union members in West Virginia and Kentucky, and the company is currently responsible for more than 10,000 retirees and another 10,000 dependents, most of them in West Virginia, Indiana, Illinois, Kentucky and Ohio.

On the selenium issue, Patriot was already 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.

Selenium, a naturally occurring element found in many rocks and soils, is an antioxidant needed in very small amounts for good health. In slightly larger amounts, selenium can be toxic. Selenium affects 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.

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.

It's not clear exactly what the deal with environmental groups would have included, but court records show Patriot had been asking to temporarily stop construction of a treatment system at its Hobet complex, and to delay deadlines for ensuring its selenium discharges comply with permit limits.

Previous court filings indicated the parties "have discussed a range of options that might be considered during Patriot's reorganization" including changing compliance deadlines and the company's "broader obligations."

Now, court records indicate that company and environmental group lawyers "disagree about the next steps in this litigation, including in regard to the jurisdiction of this court to grant relief."

Chambers gave the parties until Monday to file legal papers outlining how they want to proceed. Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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