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Coverage of energy that moves beyond polarized arguments and emotional debate to explore the points of tension, the tradeoffs and opportunities, and the very human consequences of energy policy, production, use and innovation.Inside Energy is a collaboration of seven public media outlets in the nation's energy epicenter: Colorado, Wyoming and North Dakota.

Will Coal's Slump Leave States Like Wyoming On The Hook For Cleanup?

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Leigh Paterson
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Inside Energy
Land reclaimed from coal mining is generally leased for seasonal grazing or agriculture.

Among the top 10 coal producing states, over one million acres of land has been "disturbed" for coal mining operations, according to data from the U.S. Office of Surface Mining, Reclamation, and Enforcement. Reclaiming those mines, filling them with dirt and recreating the ecosystem that once was is expensive. As the coal industry downturn rapidly advances, companies may no longer have the cash on hand to pay for billions of dollars in cleanup costs.

From her house near Gillette, Wyoming, Karla Oksanen can hear the big machinery and see the dust kicked up at the Eagle Butte Mine. When operators detonate dynamite to clear dirt away from the coal seams at the vast, dark, open-pit mine, they can feel it.

"The shaking from the blasts, yeah," Oksanen said with a laugh. "It's kind of like an earthquake!"

Over the years, Oksanen and the mine have managed to coexist, but these days she is concerned about the issue of cleanup. Alpha Natural Resources, a coal company that recently filed for bankruptcy, is Eagle Butte's owner.

Regulators estimate it would cost over $400 million to restore the land that Alpha has mined in Wyoming. But in its most recent financial filings, the company listed nationwide liabilities two-and-a-half times greater than its assets. The question of who will take on that cleanup debt and how it will get paid back is getting worked out in bankruptcy court. Oksanen's worry is that funding could ultimately fall to the state.

"It would be a huge program to try to fill it all in," Oksanen said. "Hopefully, they won't leave it to the taxpayer to pay the bill."

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Credit Leigh Paterson / Inside Energy
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Inside Energy
Karla Oksanen has lived next door to Eagle Butte Mine for over 20 years.

Leaving it to the taxpayer is exactly what is never supposed to happen. Before mining even begins, federal law requires companies provide financial guarantees that cleanup will be paid for, even if the company goes under. One type of financial guarantee behind billions of dollars in outstanding cleanup costs isn't much more than a promise. It's called self-bonding.

"A self-bond is basically like an IOU. It's just kind of a piece of paper that says 'hey, you know what, I'm good for it,'" said Clark Williams-Derry of the Sightline Institute, a Seattle-based sustainability, energy, and environment think tank.

States administer their own reclamation programs, so the requirements can vary, but in order to self-bond, coal companies must first pass a test of financial strength. Even in a struggling coal market, many companies have been approved to self-bond, despite questionable financial status.

"Big companies that seemed to be too healthy to fail, too big to go under that are approaching bankruptcy and they've been self-bonding," Williams-Derry said.

Out of top coal producing states, Wyoming has the highest rate of self-bonding at 76 percent. Over half of the projected costs to cleanup mines in at least four other states – Colorado, North Dakota, Indiana and Texas – are covered by self-bonds.

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Credit Jordan Wirfs-Brock / Inside Energy
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Inside Energy
Data is courtesy of the Energy Information Administration and state environmental quality departments.

Alpha Natural Resources is self-bonded for reclamation obligations in both Wyoming and West Virginia, so those states are two of the first to be forced to deal with the issue of mine reclamation during the downturn. Wyoming regulators defend the program and say they couldn't take any "adverse action," against Alpha due an order from the bankruptcy court.

"Nobody has had to pay a penny yet for this, out of the public, for this reclamation," said Kyle Wendtland, the land quality administrator with the Wyoming Department of Environmental Quality. "The position that the agency is taking here is that the process is working, the way the process is supposed to work."

In coal mining communities the situation can be seen as a catch-22. If coal companies actually have to put up the money for reclamation in place of self bonds, it could hurt their already dismal balance sheets, sending them into bankruptcy. Alpha Natural Resources said as much in financial documents not long before it filed for bankruptcy, writing, "Failure to…maintain self-bonding status … could adversely affect our ability to mine and lease coal."

The situation is likely to get worse. Two of the nation's biggest coal companies, Arch Coal and Peabody Energy, together have just over $1.8 billion in coal mine reclamation self-bonding. Arch has announced that it could declare bankruptcy in the "near term." According to credit ratings agency Fitch Ratings, Peabody has a "reasonable likelihood of default."

Inside Energy is a public media collaboration, based in Colorado, Wyoming and North Dakota, focusing on the energy industry and its impacts.

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