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Published: Friday, May 18, 2007
Page: 1C
Byline: KEN WARD JR.

Federal regulators cut a deal four years ago that saved Massey Energy from potentially losing at least $85 million in coal sales to government-owned power plants, according to new court documents and records obtained under the Freedom of Information Act.

U.S. Environmental Protection Agency officials have not previously disclosed the settlement. The deal kept Massey from being barred from government contracts after two of its subsidiaries pleaded guilty in 2002 to criminal Clean Water Act violations.

Lawyers from EPA and the Department of Justice revealed the agreement's existence in a new federal court lawsuit.

Last week, EPA and DOJ sued Richmond, Va.-based Massey and more than two dozen of its subsidiaries for widespread water pollution violations in Southern West Virginia and Eastern Kentucky.

The lawsuit, filed in U.S. District Court in Charleston, alleges thousands of water pollution violations between 2000 and 2006. Massey has responded that EPA has overstated the violations, that its environmental performance is improving, and that most of the citations listed in the suit caused little if any water quality damage.

In their lawsuit, federal government lawyers stated that Massey worked out a deal with the EPA Suspension and Debarment Division prior to subsidiaries Omar Mining and Independence Coal's pleading guilty to criminal violations in December 2006.

The deal was negotiated during a private meeting in Charleston a month before the two Massey companies pleaded guilty in December 2002, records show.

It was finalized three months later, in March 2003, when Massey CEO Don Blankenship signed it, according to a copy of the 16-page agreement obtained through an FOIA request.

Without the agreement, Massey could have been barred from selling coal to the Tennessee Valley Authority, EPA and DOJ officials said this week.

TVA operates 11 coal-fired plants in Tennessee, Alabama and Kentucky, and buys about 40 million tons of coal a year.

Massey's sales to TVA represented a very small portion of the company's 40 million tons in annual coal production, records show. But Massey sales to the TVA quadrupled in the two years following the EPA deal.

Massey sold about 300,000 tons of coal to the TVA in 2001, according to TVA figures. In 2003, Massey sold the TVA nearly 900,000 tons of coal. By 2004, the figure had increased to 1.2 million tons.

Massey sales to the TVA have since dropped significantly. Between 2003 and 2006, shipments to the TVA accounted for just 1.3 percent of Massey's total coal revenues, according to corporate disclosures.

Earlier this year, Massey raised concerns about potential debarment again.

Massey lawyers insisted on language to protect Massey from such action when subsidiary White Buck Coal Co. pleaded guilty to a criminal charge of not making sure a mine was safe before miners went to work.

Prosecutors and company lawyers signed an "agreed statement of facts" that said "there is no evidence" to suggest that Massey "knew or had reason to know of, approved or acquiesced" in a foreman's failure to conduct a pre-shift examination at White Buck's Grassey Creek No. 1 Mine near Leivasy, Nicholas County.

During a Feb. 21 plea hearing, Massey lawyer Robert Luskin told U.S. District Judge John T. Copenhaver that the paragraph was "intended to distinguish Massey, the parent corporation, from White Buck, the subsidiary, which is admitting to a knowing violation of the statute."

"Massey Energy, among its other businesses, includes contracting with the federal government," Luskin told Copenhaver, according to a hearing transcript.

"There are various rules regarding contractors and contractors with affiliated companies that are not convicted of a criminal offense, and the question of whether or not the parent corporation knew or had reason to know of the criminal conduct would be relevant to determinations of suitability for a company that does business with the federal government," Luskin said.

Under the federal Clean Water Act, specific facilities that are convicted of criminal pollution violations are automatically barred from receiving government contracts. Under the law, EPA has discretion to broaden the contract ban if it believes a corporate parent was involved in the criminal violations.

In August 2002, federal prosecutors charged Omar and Independence with criminal violations related to blackwater spills into Boone County streams. The charges stemmed from leaks from Massey operations into Robinson Creek during June and August 2001. Both companies paid the maximum $200,000 in fines.

Federal records show that Massey officials approached EPA "in anticipation of guilty pleas" in the Omar and Independence cases.

Massey wanted to "inform [EPA] about corrective measures instituted and planned by Massey and to seek a determination that the conditions giving rise to the anticipated convictions of Omar and Independence have been corrected," according to the EPA settlement.

Under the settlement, Massey agreed to a number of steps to improve environmental performance. The company created a new compliance program that included regular audits, additional staff, better training, and a hot line for employees to report environmental problems.

The agreement said EPA officials were convinced the Omar and Independence violations "were one-time occurrences which have been corrected."

EPA, the agreement said, "believes that education of employees corrects the proximate cause of the convictions and the compliance programs required by the plea agreements and this compliance agreement provide the institutional commitment to environmental compliance necessary for [EPA] to make the determination that the conditions giving rise to the anticipated [Clean Water Act] convictions have been corrected."

In its new lawsuit, the EPA recited a long list of Massey violations and settlements with various regulatory agencies.

"Despite this history of Clean Water Act violations and enforcement efforts by federal, state and local authorities, Massey Energy and its subsidiaries continue to violate the CWA, and remain in substantial noncompliance with the law," EPA said.

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

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