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DEQ's Alpha defense

Tourists photograph a coal truck as it makes its way from the mine to the processing area at the Eagle Butte Coal Mine north of Gillette in August.

Wyoming regulators strongly defended their oversight of Alpha Natural Resources in a letter to their federal counterparts Friday, saying the state has taken appropriate steps to ensure the bankrupt coal company meets its $411 million reclamation obligations.

The letter, which comes on the heels of a warning from the U.S. Office of Surface Mining Reclamation and Enforcement last month, marks an escalation in the debate over coal companies’ reclamation responsibilities.

State officials questioned Washington’s authority to intervene in the matter, arguing Wyoming has “exclusive jurisdiction over surface coal-mining operations” under the law.

“OSMRE has no basis for second guessing DEQ’s judgement,” wrote Kyle Wendtland, who oversees mining regulation at the Wyoming Department of Environmental Quality.

It was not immediately clear how federal officials would react. An OSMRE spokesman did not respond to a request for comment on Monday, a federal holiday.

The tension stems from a deal signed by Alpha and Wyoming in September. The agreement gives Wyoming a $61 million super-priority claim, ensuring the state is among the first paid in the event Alpha fails to emerge from bankruptcy.

But critics charge that falls far short of covering the company’s $411 million in estimated cleanup costs. Federal regulators expressed a similar concern in a Jan. 21 letter to the state.

Mining companies are required to carry bonds in the amount of their cleanup costs in order to maintain a mining permit. Many coal companies have employed “self-bonds,” which allows firms to secure future cleanup costs against their own assets. But Alpha failed the financial stress test needed to qualify for self-bonding status last year, prompting the state to initially request $411 million in replacement bonds.

An Alpha spokesman declined to comment Monday. The company, in bankruptcy filings, has said replacing its bonds in full would be detrimental to restructuring efforts. Alpha has continued mining as it attempts to emerge from Chapter 11.

Under its deal with Wyoming, Alpha is not required to post replacement bonds during bankruptcy.

Federal officials said the deal may violate the law because it allows the miner to continue operating without sufficient bonding to cover its $411 million in estimated cleanup.

In their response, state officials said the agreement did not release Alpha from its reclamation obligations. On the contrary, they said, it requires the company that emerges from bankruptcy to fully cover its bonding obligations. And they argued the deal was in the best interest of the public, ensuring Alpha continues reclaiming land at its two Campbell County mines.

“These events highlight certain systemic problems with self-bonding, but had to be addressed individually and in a timely manner,” Wendtland wrote. “DEQ, as the entity with exclusive jurisdiction over the matter, exercised its considerable discretion to enter a settlement that protects the public, the environment and sets a firm timetable for Alpha’s transition away from self-bonds.”

A federal bankruptcy court’s approval of the agreement proves the state’s actions were justified, he added.

A DEQ spokesman did not return a request for comment Monday.

The tension between the state and federal governments is a result of the way U.S. mining laws are structured, said William Gorton, a mining attorney at the Lexington, Kentucky law firm Stites & Harbisob.

States are given jurisdiction to enforce federal law, but Washington is granted oversight.

“It creates tension along the federal-state interface, if you will,” Gorton said. “These sort of issues are decided in the courts.”

Of the bankruptcy court’s ruling in favor of Wyoming’s agreement with Alpha, he added: “I think it is a compelling fact OSM might have to consider in its response.”

Mark Squillace, a law professor at the University of Colorado who has criticized Wyoming’s approach to mine reclamation, said state officials failed to address federal regulators’ central concern.

Claiming Alpha remains liable for the entirety of its cleanup does not meet the legal requirement that a company be fully bonded for reclamation, he said. The fact remains Wyoming has secured only $61 million of the estimated $411 million in cleanup work, Squillace said.

Meanwhile, the deal has frozen the company’s reclamation liability at $411 million while it continues to mine, he said, meaning Alpha’s cleanup bill is likely larger than what it is responsible for guaranteeing.

“These companies are in dire straits,” Squillace said. “What their creditors want to know is, ‘where is the money?’ They don’t get money by doing reclamation work. They have every incentive to pull coal out of the ground as fast as they can without performing reclamation.”

Follow energy reporter Benjamin Storrow on Twitter @bstorrow

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