This article originally provided by The Charleston Gazette

January 18, 2008

$20 million fine, improvements part of Massey deal; feds believe company will now have to change

By Ken Ward Jr.
Staff writer

Federal environmental regulators believe a record $20 million fine, new pollution monitoring requirements and the threat of automatic penalties for additional violations will force Massey Energy Co. to change the way it does business.

Massey agreed to the fines and other steps to settle a major government lawsuit. In May 2007, regulators accused the company of thousands of water pollution violations across the Southern West Virginia and Eastern Kentucky coalfields.

If approved by a federal judge, the settlement announced Thursday would rank as the largest civil penalty ever for Clean Water Act permit limit violations.

The 54-page deal would also force Massey to set up extensive new pollution databases and conduct intensive compliance audits, as well as quickly fix problems and report company-wide progress to federal regulators.

“There is a lot of transparency now as this goes forward,” said Robert Klepp, an attorney with the U.S. Environmental Protection Agency’s Office of Enforcement and Compliance Assurance.

Massey must implement a series of detailed new pollution control plans, and pay an escalating scale of fines — starting at a minimum of $1,000 for the first citation — for future water permit violations, under the settlement.

Company officials must contract for a variety of independent environmental audits, start a new program to inspect and maintain slurry pipelines, and hire a special contractor to implement many of the settlement’s requirements.

Massey must also design a series of new databases and warning systems to track violations, report those violations to management, and correct the underlying problems. Periodic reports of these steps must be filed with federal regulators.

“We hope we have them tied to a set of requirements whereby they are going to step forward and do the right thing,” Klepp said. “We expect that their level of violations is going to go significantly down.”

The settlement is subject to a 30-day comment period before being considered for approval by U.S. District Judge John T. Copenhaver Jr.

Citizen groups and environmental enforcement experts, while praising the deal, wondered why it took regulators so long to catch up to Massey, and why the punishment wasn’t more serious.

“Here was my first reaction: Why didn’t this go criminal?” said Pat Parenteau, an environmental law professor at Vermont Law School.

“It’s very late in the game for a company of this size and sophistication to have a record of sustained violations like this,” Parenteau said. “This strikes me as reckless, as gross negligence. I think this should have been a criminal indictment of the company.”

In fact, two Massey subsidiaries had already pleaded guilty five years ago to criminal Clean Water Act violations. Those plea deals, with Omar Mining and Independence Coal, also included a long list of environmental audit, cleanup and reporting requirements.

EPA and U.S. Department of Justice lawyers cited those plea deals as among a long list of state and federal efforts to force Massey to begin abiding by coal industry environmental rules.

When they filed the suit in May 2007, government lawyers said Massey and its subsidiaries “have a long history of noncompliance” with water pollution rules. Massey operations, the government alleged, “remain in substantial noncompliance with the law.”

The 28-page complaint, along with dozens of attached lists, detailed thousands of violations of permit limits for acidity, sediment, iron, manganese and other pollutants. The EPA said in many cases, Massey operations discharged pollution in amounts 40 times their legal limits.

Between January 2000 and March 2006, self-reported violations, included in reports Massey filed with regulators, amounted to 60,500 days of violations, or about 28 violations per day, according to court records.

Last year, several West Virginia environmental groups tried to intervene in the government lawsuit. As of Thursday, Copenhaver had not yet ruled on their requests.

Those environmental groups were quick to point out Thursday that the thousands of violations outlined in the federal lawsuit had never been cited or punished by the West Virginia Department of Environmental Protection.

“If the state had brought this action, this money would be going into state coffers instead of to the federal government,” said Joe Lovett, a lawyer for the citizen groups. “DEP has the primary responsibility for enforcing the Clean Water Act permitting program, and this should have been something the DEP and the Manchin administration did, instead of allowing the federal government to do it.”

But during most of the period covered by the EPA suit, state officials had stopped reviewing coal company pollution discharge reports, a problem DEP mining director Randy Huffman said has been corrected.

EPA officials said the $20 million civil penalty being paid by Massey is the third largest Clean Water Act fine in history. Two other cases settled for more than $30 million, but both involved pipeline company spills and not permit violations like the Massey case.

One coal industry analyst previously cited by The Associated Press estimated Massey’s potential fines at more than $2.4 billion.

EPA officials never provided a concrete estimate. Massey in November told shareholders that it believed the company’s exposure was between $1.5 million and $7 million.

Massey President Don Blankenship had previously said the EPA suit overstated the number and severity of the violations. In court, company lawyers sought to have the case dismissed, arguing that most of the streams affected did not really fall under Clean Water Act jurisdiction.

In a statement Thursday, Massey Executive Vice President Baxter Phillips noted the $20 million settlement “is higher than the company’s initial estimate, but far lower than the published estimates of some equity analysts and media sources unfamiliar with the manner in which Clean Water Act penalties are calculated.”

Massey said it has already established a $5 million reserve for the lawsuit. An additional $15 million will be reflected on the company’s fourth quarter 2007 results, Massey said. The settlement amount is not deductible for tax purposes, Massey said.

“When we factored in the uncertainties of litigation and the absorption of management time on the matter, we concluded that the shareholders would be best served by a timely settlement that eliminated any continuing concern caused by the estimates of some sources regarding our potential exposure,” Phillips said.

Phillips said that under the settlement, Massey would be “setting a new standard for environmental compliance in the coal industry.”

As part of the deal, Massey agreed to perform 20 water quality improvement projects along 25 miles of the Little Coal River, and to set aside 200 acres of riverfront property as protected from development.

The water quality improvement projects were designed two years ago as part of a previous settlement with the state DEP, but the DEP settlement did not require Massey to actually complete any of the projects.

Massey said it has asked the Coal River Group, a local conservation organization, to help it monitor the 200 acres being protected by new easements.

“We are excited about the opportunity to increase the amount of land protected by conservation easements as part of our efforts,” said Bill Currey, president of the Coal River Group.

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