Coal industry watchers and environmentalists are asking questions about Navajo Transitional Energy Company’s purchase of bankrupt Cloud Peak Energy Inc.'s coal mines in Wyoming and Montana, particularly how it will pay for eventual mine cleanup.

NTEC, a stand-alone business authorized by the Navajo Nation to negotiate on its behalf, bought the Antelope, Spring Creek, and Cordero Rojo mines, which occupy some 90,000 acres. The Aug. 19 purchase would make NTEC the nation’s third-biggest coal producer, trailing Peabody Energy and Arch Coal.

NTEC now needs to meet state bonding requirements for cleanup when the mines are no longer operational. Bonding is designed to have companies arrange to cover those costs so taxpayers aren’t on the hook if a mine site is abandoned.

Shannon Anderson, staff attorney with the Powder River Basin Resource Council in Sheridan, Wyo., said the group will be watching to make sure the state’s reclamation bonding requirements are met.

“They’re a tribal entity, so there are special rules and regulations, and even loopholes, that apply to them,” she said. Tribes have used sovereign immunity to avoid certain requirements, she said.

NTEC had sovereign immunity in a case decided July 29 by the U.S. Court of Appeals for the Ninth Circuit over challenges to the company’s plans to reauthorize coal mining activity at a 33,000-acre strip mine on Navajo Nation land in New Mexico.

Because of the tribe’s sovereignty, the court tossed out a lawsuit by environmental groups alleging violations of the Endangered Species Act and National Environmental Policy Act.

Cleanup Requirements

Wyoming’s requirements on cleanup are quite clear, Keith Guille, spokesman for the state’s Department of Environmental Quality, said. Companies must provide adequate bonding to cover reclamation, which involves cleanup and restoration of mine sites that close.

“We audit these every year and ensure they have the correct bonding for reclamation,” he said.

Cloud Peak’s bonding is backed by surety companies that would have to pay if Cloud Peak abandoned a site or closed down without finishing cleanup, he said.

“We’re very confident in the bond amount and the permit they have, which is still in place,” he said. The successor company will have to have bonding in place for a permit to be valid.

Coal mines in Montana also must post bonds ensuring that cleanup will be done, according to Paul Driscoll, a representative for the Montana Department of Environmental Quality.

The state maintains a map showing mines in Montana and information about their permits, including bonding amounts.

Cleanup obligations are indeed “part of the sale,” Erny Zah, an NTEC spokesman in Farmington, N.M., told Bloomberg Environment.

“Right now we’re reviewing current and future plans” for reclamation, Zah said.

Zah referred further questions about NTEC’s purchase of Cloud Peak’s Wyoming assets to court documents filed in the bankruptcy proceeding.

Navajo Generation Station

When NTEC was trying to buy the Navajo Generating Station earlier this year and the mine that feeds it, the plant’s majority owner, Salt River Project, walked away from the deal.

NTEC eventually dropped its bid to buy the large coal-fired power plant near Page, Ariz., and the mine.

Salt River Project and the three other owners of the station—Arizona Public Service Co., Tucson Electric Power Co., and NV Energy Inc.—said in a statement that NTEC was “not able to provide the required assurances to protect the plant’s owners, their customers and shareholders in the event of a sale.”

In an Aug. 19 statement, NTEC said the three Cloud Peak mines are strong performers, but that its former owner failed because it was saddled with heavy debt.

NTEC “intends to re-focus operations on diligent mining and marketing fundamentals to achieve the same levels of operational and financial success it has accomplished at the Navajo Mine,” it said, referring to the New Mexico coal mine that was the subject of the lawsuit thrown out by the Ninth Circuit.

The Navajo Nation Council formed NTEC in 2013 to buy the mine.

The former Cloud Peak mines also have reliable access to strong markets, NTEC said. Last year, Cloud Peak sent coal to more than 58 power plants and generated $832 million in revenue, according to NTEC.

Declining Industry?

The overall picture in the U.S., however, shows declining coal prices and no new coal plants being built. In addition, coal exports are dropping, said John S.L. Morgan, senior vice president for mining and energy at the consulting firm RESPEC.

Morgan agreed with NTEC’s assertion that it will have an easier time running the mines if it’s not carrying Cloud Peak’s debt load, “but the margins have to be very tight at the moment.”

“It does seem like poor timing to be acquiring a series of coal mines,” said Jayni Hein, natural resources director at the Institute for Policy Integrity at New York University School of Law. “Is it in the best interest of who the purchase is being made for?”

Seth Feaster, data analyst at the Institute for Energy Economics and Financial Analysis, said it’s hard to see the advantage for NTEC in buying the mines.

The Powder River Basin is expected to lose 35 million to 40 million tons in coal sales this year, Feaster said. “That’s got to come from someplace.”

That someplace is more than likely going to be NTEC’s new mines, because Peabody and Arch—the other big players in the region—are now going to combine their efforts in order to wring costs out of their operations, Feaster said.