When state officials confirmed last week coal miner Alpha Natural Resources no longer qualifed for a pass on a multi-million dollar reclamation bond, the question throughout much of Wyoming was, "What now?"
A landowners group said the development calls for reform of the state's mine reclamation program. Industry representatives preached patience, noting no company has yet failed to meet its cleanup obligations. And regulators said the news proved the state's reclamation rules work, though some said it speaks to a need for increased vigilance given coal's wider woes.
But all agreed on this much: the nation's top coal mining state has never been here before.
"This is a case of first impression," said Greg Conrad, executive director of the Interstate Mining Compact Commission, which represents 23 state environmental regulatory agencies. "I don’t think we’ve ever faced a situation where there is a sizable bonding obligation that has to be met."
The sizable obligation, in Alpha's case, is $411 million.
Reclamation bonds are a form of insurance required by state and federal regulators to ensure energy companies clean up after their operations.
Generally, a company posts some form of collateral -- a corporate surety bond, a letter of credit or cash -- to cover the costs of cleaning its mines or wells. If the company reclaims the land where it works, the bond is returned. But if a firm runs into financial trouble and cannot pay for cleanup, regulators seize the bond and use it to cover the reclamation costs.
Alpha had previously qualified for what is known as a self-bond, a designation afforded to many major coal companies working in the state. A company with a self-bond does not need to post collateral. However, it must prove it is financially healthy enough to meet its reclamation obligations.
State regulators say Alpha failed its financial test for self-bonding status, a first for a major coal company. The miner now has 90 days to come up with $411 million in surety bonds, government securities or other financial instruments to cover its obligations.
Alpha has contested the claim, questioning the state's method of calculating its financials. The company could choose to challenge the determination in court. An Alpha spokesman said he had no updates on the matter Wednesday.
The company operates two mines in Wyoming, Eagle Butte and Belle Ayr, which produced a combined 36 million tons of coal last year.
Alpha has been dogged by bankruptcy speculation after a series of poor earning reports, mine closures, layoffs and mounting concerns over its debt. In financial reports, the company has said a loss of self-bonding status would adversely impact its operations.
Failure to cover the $411 million bonding obligation would put Alpha in violation of its state mining permit.
Keith Guille, a spokesman for the Department of Environmental Quality, said it was "inappropriate" to speculate over what will happen when the 90-day period comes to an end.
The company should be able to meet its reclamation obligations, given Alpha's prior record and an improved first-quarter financial report, he said.
The situation nevertheless hinted at an emerging and increasingly awkward challenge for Wyoming officials.
The Cowboy State accounts for 40 percent of national coal production, and the industry forms the bedrock of the Wyoming economy. Coal contributed roughly $1.1 billion in state and local tax revenue in 2013.
State officials said they are loath to do anything that might further burden an industry already struggling with low prices and a tightening regulatory picture.
"We want to help them, not hurt them," said Sen. Michael Von Flatern, a Gillette Republican who serves as co-chair of the Joint Minerals, Business and Economic Development Committee.
He said he did not see a need to reform the state's bonding program.
"I think it proves the system works," Von Flatern said. "We got a heads up before there was wreck."
Underpinning Wyoming's decision on Alpha's self-bonding status is the federal Surface Mining Control and Reclamation Act. States enforce the law, but failure to implement its provisions could invite oversight from the U.S. Office of Surface Mining Reclamation and Enforcement, a decidedly unwelcome prospect in a state where anti-federal sentiment runs high.
Von Flatern said he has spoken with some constituents who were angry because they perceived the decision as a state attack on coal. The Gillette lawmaker said he had to explain Wyoming was merely enforcing the rules of a program that have been in place for three decades.
"DEQ has been good to explain their position," Von Flatern said.
A spokesman for Gov. Matt Mead said the governor was concerned to hear the news about Alpha, but noted he did not support a review of the state’s bonding program.
Wyoming holds $2.1 billion in self-bonding obligations from coal companies working in the state. Four companies account for roughly 90 percent of that sum. Peabody Energy has $814 million in self-bonds, Arch Coal has $458 million and Cloud Peak Energy has $200 million, in addition to the $411 million owed by Alpha.
DEQ announced this week that a second smaller miner, Rocky Mountain Coal Co., also failed to meet the financial criteria for self-bonding status. The company has not mined at its southwestern Wyoming location in years, but maintains an active permit with a self-bonding obligation of $2.4 million.
Attempts to reach Rocky Mountain Coal were unsuccessful.
State regulators said they are currently reviewing Peabody and Arch's financials to see if they meet the criteria for self-bonding.
Peabody believes it remains in full compliance with state and federal self-bonding standards, said company spokeswoman Charlene Murdock.
"We pride ourselves in our track record of high quality reclamation and believe that the standards that govern bonding are appropriate and have led to successful results for the state," she said in a statement.
An Arch spokeswoman said the company believed it, too, is in compliance with Wyoming's standards.
The sector's wider struggles have led to calls from the Powder River Basin Resource Council, a Sheridan landowner's group, to reform the state's reclamation program.
Wyoming's reclamation liability is substantial, and self-bonding may not provide enough protection to ensure companies meet their obligations, said Shannon Anderson, a lawyer at the group. More protective measures may be needed to protect the public interest, she said.
"The purpose of the self-bond program was designed for financially fit companies. It is a privilege, not a right," Anderson said. "If they are not financially fit, the state has to be protective."
Robert Duke, chief counsel for the Surety and Fidelity Association of America, a trade group, said Alpha's deteriorating financial position illustrates the risk of self-bonding.
"The only thing Wyoming can do is say, 'Find alternative security,'" Duke said. "Compare that to if the operator has a surety bond and there is a default. Then what happens is a surety’s deep financial pockets step in."
Self-bonding was designed in the 1980s with two ideas in mind, said Conrad, the interstate mining compact director.
Financially healthy companies could rely on their own assets to cover their reclamation costs. It also reflected the limited number of surety companies that sell bonds to coal companies. Today about four or five surety firms sell to coal miners, he said.
Wyoming is one of a few states where self-bonding is used, Conrad said. Some states allow it but don't have companies large enough to qualify. Others have large enough companies but don't feel it provides enough security, he said.
"I think our take on this, as the state looked at what happened here, is more concern not about self-bonding, but the overall financial health of the industry and what that means for the utilization of this alternative in the future," Conrad said.
It may mean other bonding alternatives are needed, he said, but added that doesn't mean the self-bonds in place necessarily need reform.
"I don’t think it is a matter of needing additional protections. It is just making sure the ones in place are acting as intended," Conrad said.
Reclamation has long been a point of pride for Wyoming's mining companies, with many firms abiding to the ethos of "leave it better than you found it," said Jonathan Downing, executive director of the Wyoming Mining Association.
Mine cleanup is a continuous process that companies are constantly engaged in, he said, noting no mining firm has yet failed to meet its reclamation obligations.
"If people are not meeting their reclamation obligations, they’re going to get shut down. That’s not the case here," Downing said.
He questioned the motives of groups calling for reform, saying they were opposed to coal.
"It’s the old, 'Solution in search of a problem,'" he said.
Alpha and the state are in talks over how the company will meet its obligations. He expressed confidence both sides would be able to come to a solution.
This story has been updated with comments from Gov. Matt Mead.