Wyoming and West Virginia have much in common when it comes to coal.
As the country's first- and second-largest producers, coal is central to their economies. Their governors are outspoken supporters of the industry. And both have been forced to grapple with the prospect that coal companies, under increasing financial stress, may no longer have the money to pay for the reclamation they once promised to complete.
But on the last point, that is where the similarities end. America's leading coal-producing states have pursued different strategies to address the emerging challenge raised by the bankruptcy of Alpha Natural Resources. The Virginia-based firm, one of America's largest coal companies, has unsecured reclamation obligations totaling $655 million in the two states.
West Virginian regulators struck a deal with Alpha aimed at gradually transitioning the Virginia-based coal company away from a form of reclamation insurance known as self-bonding, where firms use their own finances as collateral on future cleanup costs.
Mountain State officials notably reserved the right to object to any restructuring plan that does not replace Alpha's self-bonds with a secured form of credit, like cash or a surety bond. The agreement also called on Alpha to immediately reduce its self-bonding obligation by $10 million and to begin reclamation work at one of its mines.
Their Wyoming counterparts say they too want to move Alpha away from self-bonds, but the Cowboy State agreement with the company contains few of the provisions called for in the West Virginia deal. Such provisions are unnecessary, they say, arguing Wyoming's reclamation regulations will prevent Alpha from securing self-bonds in the future if the company emerges from bankruptcy.
Environmentalists are skeptical, however. They believe Wyoming's deal with Alpha represents a giveaway to the coal company. Of Alpha's $411 million in reclamation costs, the state secured a $61 million "super-priority" claim that can be applied toward the company's cleanup bill during bankruptcy proceedings. West Virginia struck a similar deal, securing a $39 million priority on Alpha's self-bonding obligations of $244 million.
West Virginia's deal probably does not achieve everything the state wanted, but "it gives them a path forward," said Shannon Anderson, an attorney at the Powder River Basin Resource Council, a landowners group in Sheridan. "In Wyoming the path forward is uncertain."
Under federal law, coal companies are required to be fully insured for their reclamation costs. Many firms have favored self-bonding. Wyoming alone holds some $2.2 billion in self-bonds from coal companies.
However, the practice has attracted growing scrutiny as mining firms continue to struggle amid a fierce downturn, raising concerns that taxpayers could be left to pay for cleanup of shuttered mines. Arch Coal, which has self-bonding obligations of $458 million in Wyoming, has been subject to considerable bankruptcy speculation.
Industry groups have sought to allay concerns over the practice. Alpha, they note, has continued reclamation operations at its mines even as it navigates bankruptcy proceedings. Federal regulators, meanwhile, have signaled they are monitoring the situation and could step in if they judge the efforts of state regulators to be insufficient.
West Virginia officials declined comment on the matter, but in a recent statement said the deal provided additional financial assurance Alpha would meet its cleanup obligations.
Wyoming regulators, for their part, dispute the argument West Virginia has been more aggressive in addressing the problem. Alpha operates some 500 coal mines in West Virginia while in Wyoming the company operates only two, they note.
"Their agreement is tailored to their rules and regulations. Wyoming’s agreement is tailored to address Wyoming’s rules and regulations," said Kyle Wendtland, who oversees the Department of Environmental Quality's Land Quality Division.
And they contend state regulations offer enough protections to ensure taxpayers won't be responsible for Alpha's cleanup bill.
The company has hired a consulting firm to help improve the efficiency of the dirt-moving operations central to its reclamation work. Less costly dirt works could help lower Alpha's overall reclamation liability, they say.
Wyoming regulators are conducting monthly inspections to ensure Alpha meets the terms of its reclamation plans with the state.
And state regulations prohibit companies with less than five years of operating experience in the state from obtaining self-bonds, they note.
"When Alpha comes out of restructuring, they won’t meet that five-year test," said DEQ spokesman Keith Guille. "That in itself means you would have to find a different type of bonding reclamation."
But that assertion could well be tested. Alpha, which has continued to operated through bankruptcy, has argued repeatedly in court filings that full payment of its reclamation obligations would be detrimental to its restructuring efforts.
Greg Conrad, executive director of the Interstate Mining Compact Commission, which represents 27 state environmental protection agencies, reckons regulators in West Virginia and Wyoming are doing their best to confront the issue. Nevertheless, no company has ever had unsecured reclamation obligations to the extent Alpha has, he noted.
"I think we keep adding to the list of questions," he said. "With each new iteration that this plays out, and with each new potential approach for resolving this dilemma, these types of questions are going to come up."