Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/16 16:09:59 Desc Main Document Page 1 of 8

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1 Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/ Desc Main Document Page 1 of 8 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In Re ALPHA NATURAL RESOURCES INC., et al., Chapter 11 Debtor. Case No (KRH) (Jointly Administered) COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF ENVIRONMENTAL PROTECTION S LIMITED OBJECTION TO AND RESERVATION OF RIGHTS REGARDING THE STALKING HORSE ASSET PURCHASE AGREEMENT AND STALKING HORSE PROPOSED SALE ORDER AND NOW, comes the Commonwealth of Pennsylvania, Department of Environmental Protection ( PA DEP ), through its counsel, and files its limited objection to the Stalking Horse Asset Purchase Agreement ( Stalking Horse APA ) and Stalking Horse Proposed Sale Order and reservation of rights in the above referenced bankruptcy case. BACKGROUND 1. The PA DEP is the administrative agency of the Commonwealth of Pennsylvania with the duty and authority to administer and enforce the environmental laws of the Commonwealth of Pennsylvania. 2. In particular, and as related to the Stalking Horse APA and Stalking Horse Proposed Sale Order, the PA DEP administers and enforces the Clean Streams Law, Act of June 22, 1937, P.L. 1987, as amended, 35 P.S ( Clean Streams Law ); the Surface Mining Conservation and Reclamation Act, Act of May 31, 1945, P.L. 1198, as amended, 52 P.S a ( Surface Mining Act ); the Bituminous Mine 1

2 Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/ Desc Main Document Page 2 of 8 Subsidence and Land Conservation Act, Act of April 27, 1966, Sp. Sess. No. 1, P.L. 31, as amended, 52 P.S ( Mine Subsidence Act ); and the Coal Refuse Disposal Control Act, Act of September 24, 1968, P.L. 1040, as amended, 52 P.S ( Coal Refuse Disposal Act ); the Pennsylvania Oil and Gas Act, Chapter 32 of Title 58 of the Pennsylvania Consolidated Statutes, 58 Pa. C.S ( Oil and Gas Act ); Section 1917-A of the Administrative Code of 1929, Act of April 9, 1929, P.L. 177, as amended, 71 P.S ( Administrative Code ); and regulations promulgated thereunder. LIMITED OBJECTIONS TO THE STALKING HORSE APA 3. The PA DEP s limited objections to the Stalking Horse APA are based on Article 4, Sections 4.08 and 4.09 ( Assurances of Buyer regarding permits and bonding ), Article 5, Section 5.07 ( Release; Acknowledgments ), and Article 7, Section 7.03 ( Transferred Permit/License and Surety Bond Matters ). 4. The PA DEP does not object to the requirements set forth in Section 4.08 ( Buyer s Assurances Regarding Permits ) that the Buyer will assure to the Seller that it is eligible to take transfer of, or obtain a replacement for, the Transferred Permits/Licenses, is eligible to operate as a contract operator, and is otherwise not in violation of any state or federal law that prohibits the transfer of any permits or licenses. 5. However, in an abundance of caution, the PA DEP respectfully advises the Seller, Buyer and this Court that regardless of any representations made by the Buyer, the PA DEP, as the state regulatory agency, has the authority to determine whether the Buyer meets the statutory and regulatory criteria for transfer of permits and licenses, approving contractor operators, and whether the Seller or Buyer are in violation of Pennsylvania environmental law at the time the permit and license transfer applications are acted upon. 6. The PA DEP also does not object to the requirements set forth in Section

3 Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/ Desc Main Document Page 3 of 8 ( Buyer s Assurances Regarding Bonding ). Again, in an abundance of caution, the PA DEP respectfully advises the Seller, Buyer and this Court that regardless of any representations made by the Buyer, the PA DEP, as the state regulatory agency, has the authority to determine whether the Buyer meets the statutory and regulatory criteria for financial assurances, including the appropriate form of financial assurance and the appropriate amount of financial assurance, and that the appropriate financial assurance has been posted at the time of transfer of any permits and licenses. 7. The PA DEP does not object to Section 5.07 ( Seller Release; Acknowledgments ) per se, however, the language set forth in Section 5.07 could be read to release not only the Buyer but also the Seller from certain obligations related to two appeals from PA DEP final actions which have been filed with the Pennsylvania Environmental Hearing Board ( PA EHB ). Actions Pending Before the Pennsylvania Environmental Hearing Board 8. The PA EHB was established by the Environmental Hearing Board Act, 35 P.S , as an independent quasi-judicial agency with the power and duty to hold hearings and issue adjudications from appeals of actions of the PA DEP. 9. There are two appeals before the PA EHB which involve affiliates of Alpha Natural Resources, Emerald Coal Resources, L.P. ( Emerald ), and Cumberland Coal Resources, L.P. ( Cumberland ). Both appeals have been stayed, pending the resolution of the Alpha Natural Resources bankruptcy, hence they remain unresolved. 1 1 A third appeal filed before the PA EHB by David and Linda Mirkovich, at EHB Docket No M, is also pending. On April 12, 2016, at document No. 2054, Emerald Coal filed a Motion for Approval of Settlement of the Mirkovich appeal. 3

4 Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/ Desc Main Document Page 4 of The first appeal, filed by David and Anna Vanscyoc against the PA DEP and Emerald, at EHB Docket No R (Consolidated with R), is an appeal from a Department Order which directed Emerald to pay Vanscyoc damages. 11. The second appeal, filed by Donna and Terry Rush against the PA DEP and Cumberland, at EHB Docket No B, is an appeal of the Department s denial of Mr. Rush s claim for subsidence damage. 12. In the Vanscyoc appeal, Emerald is potentially liable for payment of damages. In the Rush appeal, Cumberland is potentially liable for subsidence damage should the Board sustain his appeal and reverse the PA DEP s decision. 13. These appeals involve Cumberland s and Emerald s obligations to comply with Pennsylvania environmental law. 14. Therefore, the Stalking Horse APA should make clear that the Buyer and Seller s mutual release from any claims, causes of action, proceedings, damages, does not release Emerald and Cumberland from any obligations which may arise related to the pending actions before the PA EHB. Section 7.03 Transferred Permits and Licenses 15. PA DEP objects to Section 7.03 ( Transferred Permit/License and Surety Bond Matters ) to the extent that the provisions in this section conflict with Pennsylvania Environmental Law. 16. The assets subject to the Stalking Horse APA include underground coal mines, surface facilities associated with underground mining activities, coal preparation plants, coal reserves, and rights to develop gas reserves in Pennsylvania. Under the Mine Subsidence Act, the Coal Refuse Disposal Act and the Oil and Gas Act, operators must first obtain a permit from the PA DEP to operate those respective facilities and drill for natural gas. 4

5 Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/ Desc Main Document Page 5 of 8 Pennsylvania Environmental Law Requirements for Permits and Licenses 17. The PA DEP regulations provide for the transfer of coal mining permits at 25 Pa. Code Under 25 Pa. Code , the successor operator must post replacement bond at the time the permit is transferred. Similar provisions for permits issued under the Pennsylvania Oil and Gas Act are set forth at 25 Pa. Code and, at 25 Pa. Code 92a.71, for permits issued under the Pennsylvania Clean Streams Law. 18. Under Pennsylvania law, the original permittee, here Alpha Natural Resources and its affiliated companies, remains responsible and liable for compliance with the terms and conditions of any permits until the permit is actually transferred. 19. Under Section of the mining regulations, 25 Pa. Code 86.57, the Department s approval of a permit transfer may not be deemed to limit the original Permittee s responsibility, liability duty or obligation under law. 20. A person who intends to mine coal as an operator must first obtain a mine operator s license under 25 Pa. Code Subchapter K. It is a violation of Pennsylvania environmental law to operate a coal mine without a license. 25 Pa. Code Section 7.03 Conflicts with Pennsylvania Environmental Law 21. Section 7.03(a) provides From and after the Closing, Buyer shall diligently pursue the transfer of the Transferred Permits/Licenses to Buyer and Buyer shall operate under the Transferred Permits/License as the designated operator in accordance with the terms and conditions contained in the Permit Transfer Agreements. 22. Section 7.03(a) further provides Sellers grant Buyer the right to conduce at the sole cost and expense of Buyer mining operations following the Closing... as the designated operator until such time as the... Transferred Permits/Licenses are transferred to the Buyer (the Interim Period ). 5

6 Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/ Desc Main Document Page 6 of Section 7.03(b) provides that, during the Interim Period, Buyer shall... be solely responsible... for all incidents of violation, non-compliance, and similar occurrences... that arise from the actions of Buyer. Section 7.03(b) further provides that Buyer shall remain liable for the Assumed Liabilities related to the Transferred Permits/Licenses even if applicable Governmental Authority fails to approve the transfers of any of the Transferred Permits/Licenses to Buyer. 24. Section 7.03(e) provides that during the Interim Period, the Sellers shall remain responsible... for up to 120 days after the Effective Date, for maintaining any surety bonds or other financial assurances required in connection with the Transferred Permits/Licenses during the Interim Period. 25. Sections 7.03(a), (b), and (e) of the Stalking Horse APA conflict with the requirements of Pennsylvania environmental law in that (i) Seller is relieved of its obligations to comply with the terms of its permits and licenses once the applications are filed, but before the PA DEP approves the permit transfer; and (ii) Seller is relieved of its obligations to maintain all required bonding and financial assurance until the permit transfer applications are approved by the PA DEP. 26. The PA DEP recognizes that Section 7.03 includes the caveat, to the extent permitted by Applicable Law,... However, given that the allocation of responsibility set forth in Section 7.03 is contrary to Pennsylvania environmental law, they should be revised to conform with the applicable regulatory requirements for permits and licenses, transfer of permits and licenses, and bonding and financial assurance. 6

7 Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/ Desc Main Document Page 7 of 8 LIMITED OBJECTION TO SALE ORDER 27. The PA DEP s limited objection to the Sale Order is based on Section 35 and is offered in an abundance of caution. 28. Section 35 provides, in part Nothing in this Order or the APA shall release, nullify, preclude or enjoin the enforcement of any police power or regulatory liability to a government unit that any entity would be subject to as the owner, lessee, permittee, controller or operator of property or a mining operation after the Closing, including but not limited to, liability for reclamation pursuant to the Surface Mining Control and Reclamation Act ( SMCRA ) and applicable state law. Nothing in this Order limits or modifies any of the Debtor s obligations under 28 USC 959(b) or releases, nullifies, precludes or enjoins the enforcement of any police or regulatory liability by a government unit against the Debtor (including, but not limited to, liability for reclamation pursuant to SMCRA) with respect thereto The coal mines, coal preparation facilities and associated surface facilities also include permitted discharges of water to the waters of the Commonwealth which are subject to the Pennsylvania Clean Streams Law and the federal Clean Water Act. 30. In addition, the assumed leases and associated gas well permits are subject to the Pennsylvania Oil and Gas Act. 31. So as to provide the broadest and most comprehensive language in Section 35, the Pa DEP respectfully suggests that the section should be revised to as follows Nothing in this Order or the APA shall release, nullify, preclude or enjoin the enforcement of any police power or regulatory liability to a government unit that any entity would be subject to as the owner, lessee, permittee, controller or operator of property or a mining operation after the Closing, including but not limited to, liability for reclamation pursuant to the Surface Mining Control and Reclamation Act ( SMCRA ), the federal Water Pollution Control Act, 33 U.S.C.A ( Clean Water Act ), the Clean Streams Law, Act of June 22, 1937, P.L. 1987, as amended, 35 P.S ( Clean Streams Law ), the Pennsylvania Oil and Gas Act, Chapter 32 of Title 58 of the Pennsylvania Consolidated Statutes, 58 Pa. C.S ( Oil and Gas Act ) and applicable state law. Nothing in this Order 7

8 Case KRH Doc 2147 Filed 04/15/16 Entered 04/15/ Desc Main Document Page 8 of 8 limits or modifies any of the Debtor s obligations under 28 USC 959(b) or releases, nullifies, precludes or enjoins the enforcement of any police or regulatory liability by a government unit against the Debtor (including, but not limited to, liability for reclamation pursuant to SMCRA, the federal Water Pollution Control Act, 33 U.S.C.A ( Clean Water Act ), to the Clean Streams Law, Act of June 22, 1937, P.L. 1987, as amended, 35 P.S ( Clean Streams Law ), the Pennsylvania Oil and Gas Act, Chapter 32 of Title 58 of the Pennsylvania Consolidated Statutes, 58 Pa. C.S ( Oil and Gas Act ) and applicable state law.) with respect thereto.... RESERVATION OF RIGHTS 32. The PA DEP respectfully reserves its rights to raise the above objections and any further objections to subsequent and/or revised Asset Purchase Agreements, Sale Orders, and documents related to the Sale, including but not limited to the Disclosure Statement and Plan. Respectfully submitted, Date April 15, 2016 /s/ Barbara J. Grabowski Barbara J. Grabowski Assistant Counsel PA ID No Office of Chief Counsel 400 Waterfront Drive Pittsburgh, PA bgrabowski@pa.gov FOR THE COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF ENVIRONMENTAL PROTECTION 8

9 Case KRH Doc Filed 04/15/16 Entered 04/15/ Desc Certificate of Service Page 1 of 1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In Re ALPHA NATURAL RESOURCES INC., et al., Chapter 11 Debtor. Case No (KRH) (Jointly Administered) CERTIFICATE OF SERVICE This is to certify that the Commonwealth of Pennsylvania Department of Environmental Protection s Limited Objection to the Stalking Horse Asset Purchase Agreement and Stalking Horse Proposed Sale Order has been served upon the Notice Parties by mailing a true and correct copy of same by first class mail and/or with the U.S. Bankruptcy Court's electronic filing system. /s/ Barbara J. Grabowski Barbara J. Grabowski Assistant Counsel PA ID No Waterfront Drive Pittsburgh, PA bgrabowski@pa.gov Date April 15, 2016 FOR THE COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF ENVIRONMENTAL PROTECTION