by Philip Mattera
Arch Coal is the second largest U.S. player in an industry that many people hope will fade away entirely because of its big contribution to pollution and global warming. The company, which grew through a series of acquisitions over the past two decades, has struggled along with its competitors as the market for coal shrinks. In early 2016 Arch filed for Chapter 11 bankruptcy and lost its New York Stock Exchange listing but vowed to continue operating.
Arch dates back to 1969, when Merl Kelce, who had built Peabody Coal into an industry giant and then sold out to Kennecott Copper, decided to get back in the business. The new company, Arch Mineral, remained modest in size until the 1980s, when it acquired the coal business of U.S. Steel and then Diamond Shamrock Coal. In 1997 it merged with Ashland Coal to form Arch Coal, then the largest producer of low-sulfur coal in the eastern United States. Ashland Oil retained a 58 percent share until 2001, when Arch became a publicly traded company.
In 1998 Arch bought the domestic coal operations of Atlantic Richfield, becoming the country's second largest producer (after Peabody). It now had substantial operations in the West as well as the East. In 2004 the Federal Trade Commission challenged Arch's plan to acquire Triton Coal, but Arch resisted and prevailed in court.
Arch's next big move came in 2011, when it purchased International Coal Group for $3.4 billion. In recent years Arch has been shrinking more than growing, and in early 2016 it filed for Chapter 11 bankruptcy and embarked on a restructuring of its heavy debt load.
Arch's first big environmental controversy occurred in 1996, when a massive mine waste spill at the operations of its Lone Mountain subsidiary in Virginia contaminated 30 miles of rivers and streams, killing thousands of fish. The company was hit with a $1.4 million state fine, one of the largest in Virginia's history.
Arch also became a bigger target for environmental activists when it escalated its involvement in mountaintop-removal mining in Appalachia. It took advantage of the Bush Administration's support for the controversial practice and resisted when the Obama Administration moved to tighten the rules. In 2010 an Arch subsidiary sued the Environmental Protection Agency over the planned revocation of a permit for a large mountaintop project in West Virginia that the agency decided would do irreversible damage to the environment. The EPA stood its ground, and when the revocation for the Spruce No.1 Mine was formally announced, Arch said it was "shocked and dismayed" and charged that the decision "will have a chilling effect on future U.S. investment." Arch took the case all the way to the Supreme Court, where it was rebuffed.
In 2011 the EPA and the Justice department announced that Arch would pay $4 million to settle alleged violations of the Clean Water Act in Kentucky, Virginia and West Virginia. As part of the settlement, Arch was required to take steps to prevent an estimated two million pounds of pollution from entering waterways, including the implementation of a system to reduce selenium discharges. That same year, Arch paid $2 million to settle a lawsuit brought environmental groups over the selenium issue in West Virginia.
In 2015 Arch had to pay another $2 million to the federal government to settle similar alleged violations by 14 subsidiaries connected to its International Coal Group operations in five states.
In 2010 Congressional testimony, Arch chief executive Steven Leer (along with the head of Peabody Energy) accepted the reality of climate change but expressed concerns about regulatory initiatives to address the problem. The company has continued its resistance to greenhouse gas regulation. In 2015 it responded to the EPA's Clean Power Plan by stating: "The Administration seems increasingly desperate to salvage an ill-advised and poorly designed rule, which won't work, won't pass muster with states, and won't stand up to legal scrutiny."
Arch is one of a handful of companies taking advantage of a non-competitive program that allows coal operators to lease federal land at below-market rates. A 2012 report by the Institute for Energy Economics and Financial Analysis estimated that over 30 years the Treasury lost $28.9 billion in revenue from the failure to obtain fair market value for the coal extracted from the Powder River Basin of Wyoming and Montana, the country's largest coal-producing region. A report released by the U.S. Government Accountability Office in 2014 also found a pattern of undervaluing coal leases, as did a 2015 report by Headwater Economics estimating that two reform options would have generated additional revenue ranging from $850 million to $5.5 billion for the 2008-2012 period.
In 2014 the Western Organization of Resource Councils and Friends of the Earth filed a lawsuit asking that the Interior Department's Bureau of Land Management be required to prepare a comprehensive environmental impact review of the federal leasing program. The last time such an assessment was done was in 1979. Arch's Chapter 11 filing came just days before the Obama Administration announced the suspension of new federal coal leases.
A 2003 inspection of Arch Coal's Black Thunder mine in Wyoming by the federal Mine Safety and Health Administration resulted in more than 50 violations. Two miners had been killed at the massive operation in the previous 12 months. In 2015 MSHA issued an imminent danger order at Black Thunder.
There have been other fatalities at Arch operations, including one at a Kentucky mine in 2013 that MSHA found had occurred after the company knew of a significant danger but failed to take proper precautions.
The most serious accident associated with Arch was the 2006 disaster at the Sago Mine run by a subsidiary of International Coal Group, which became part of Arch in 2011. Twelve miners died in a methane gas explosion at the West Virginia operation, which had been cited by MSHA for "combustible conditions" and "a high degree of negligence." During 2005 the mine had received more than 200 violations, nearly half of which were serious and substantial. Investigations of the accident by the state and the company suggested that lightning had set off the explosion, whereas a United Mine Workers report concluded that sparks generated by falling rocks inside the mine were the cause.
According to the Violation Tracker database, Arch's current operations have been fined a total of more than $6.4 million by MSHA since the beginning of 2010.
Arch has had a tense relationship with the United Mine Workers going back to the 1970s, when it dropped out of the Bituminous Coal Operators Association (BCOA), the industry body that negotiated with the UMW. Instead, it signed me-too agreements with the union under which it promised to abide by the economic terms of the negotiations without fully recognizing the union.
During the late 1980s Arch stopped contributing to a union pension fund. Management opposition played a role in several defeats the UMW experienced in organizing drives at Arch mines in Kentucky. Arch also refused to recognize the union at some new mines, prompting the UMW in 1991 to warn of a possible strike at the company's unionized operations. Three days before the deadline, the parties reached an agreement in which Arch promised to create more union jobs. The following year, six Arch subsidiaries rejoined the BCOA.
In 1993 the UMW chose Arch as one of three targets for selective strikes meant to put pressure on the industry as a whole on issues such as job security. Ashland Coal, not yet merged with Arch, was targeted when the union expanded the walkout. Two Arch subsidiaries struck back by filing racketeering lawsuits against the union. They were dropped after the seven-month strike ended.
In subsequent years, the UMW avoided large walkouts, and its disputes with Arch were more localized. But in 2012 the union pulled Arch into a campaign against Peabody Energy protesting the fact that its spinoff Patriot Coal got court approval to slash wages, pensions and healthcare benefits of workers and retirees after it filed for Chapter 11 bankruptcy. Arch was targeted because two of its former mines had been purchased by Patriot. The UMW sued both companies, and in 2013 the parties reached a settlement. Arch put the cost of its part of the settlement at $12 million. In 2015 the UMW pension plan sued the two companies again after Patriot took steps to avoid $800 million in additional retirement liabilities.
International Coal Group, acquired by Arch in 2011, also had a history of antagonism with the UMW. The investigation of the Sago Mine disaster in 2006 was stalled when a company subsidiary refused to let union representatives accompany state and federal officials into the mine site. This was despite the fact that the Mine Safety and Health Administration had recognized the UMW as the legal representative for several workers at the non-union mine. MSHA took the matter to court and got a federal judge to force the company to comply.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Key Books and Reports
An Assessment of U.S. Federal Coal Royalties (Headwater Economics, January 2015).
Coal Leasing: BLM Could Enhance Appraisal Process, More Explicitly Consider Coal Exports, and Provide More Public Information (U.S. Government Accountability Office, GAO-14-140, February 2014).
Exporting Powder River Basin Coal: Risks and Costs (Western Organization of Resource Councils, January 2011).
The Great Giveaway: An Analysis of the Costly Failure of Federal Coal Leasing in the Powder River Basin by Tom Sanzillo (Institute for Energy Economics and Financial Analysis, June 2012).
Last updated January 21, 2016