The U.S. occupation of the Kentucky coal fields is over now, but virtually no one around here doubts the power of Washington--known locally as "the federals"--to change their lives anymore.

The evidence is written all over the mountains that rise up in every direction.

Take a drive down any winding road, past the hardwoods and hemlocks, the white oaks and hard maples, into the coal fields of Viper or Cranks, Hazard or Harlan, Middlesboro or London.

On one side, the forests are pocked with black gashes--abandoned strip mines oozing silt and mud, tree limbs and rocks, which flood the streams and poison the well water.

These are the legacy of the days before federal regulation, when a state government dominated by coal interests held the only whip.

But across the way or down the hollow lie grassy slopes where strip mines used to stand, reclaimed hills built and planted by some of the same companies that left the old sores. Congress gave them no choice if they wanted to stay in business.

Now the regulation of strip mining--and lives affected by it--are again in flux. And again, it is because of Washington.

The U.S. Office of Surface Mining, the agency created to enforce the landmark 1977 strip mining law, has become a prime battleground for the Reagan administration's "regulatory reform" campaign.

Carter administration officials who stood for harsh federal regulation have been replaced by a team that preaches partnership with those it regulates: the coal industry and the nation's 24 coal states. The changes come as the coal states are resuming control of their own strip mines, backed by tougher state laws but facing the same political pressures as before.

In Washington, these changes have become the stuff of intense political debate. Interior Secretary James G. Watt portrays them as part of the Reagan mandate to cut federal regulation of industry and return power to the states. Those who founded the young agency in the Carter administration decry them as opening wedges for renewed abuse.

This battle between the old and the new federalism is barely audible from the coal fields. But that is where the effects will be felt--and seen.

The 1977 Surface Mining Control and Reclamation Act did to the coal states what the Civil Rights Act in its early years did to the South.

It declared that states had failed to protect their citizens, in this case from the ravages of strip mining. And it yanked away local control, in this case over the coal fields, until state laws were brought up to federal standards.

Like the Civil Rights Act, the law was far from popular with the states and business. There were horror stories about federal inspectors citing operators for such minor infractions as failing to label topsoil piles, about federal regulations that cost thousands of dollars to obey, about federal bureaucrats who treated Kentucky officials like hillbillies.

"If Mr. Udall Rep. Morris K. Udall, the Arizona Democrat known as the father of the law came into this country, I do believe he'd be crucified," says Donnie House, the red-bearded, 33-year-old president of Black Magic Mining Inc., a small operator who stripped 89,000 tons of coal from the mountains around London in 1981.

But the law was hailed in hollows like tiny Cranks, Ky., where in the words of a mother of six named Becky Simpson: "We've been demolished by surface mining."

Cranks became a national symbol of the ravages of unregulated strip mining in 1977, when its box-shaped frame homes were buffeted by floods thick with mud, silt, stones and tree limbs from the unreclaimed mountainsides.

Simpson remembers walking onto the porch of her rough-lumber house on that November morning, the black waters surging around her. The shaky bridge that was her only link to high land had given way hours earlier when the creek overflowed. She watched her brother's house and cars wash away. Three uprooted sycamore trees smashed through a neighbor's house.

She recalls she looked up at the mountains that surround the hollow on all sides, and her eyes fixed on the familiar black gashes, some of them 40 feet deep, the strip mines abandoned years earlier.

"It all became clear to me then. The mountain was washing down," she says. "And I thought to myself: It's surface mining. You could see where the rocks were coming from, rocks the size of car bodies. You could see the silt and the coal and the tree stumps that clog up our creek."

A state investigation later concluded that spoil from strip mines was largely to blame for the Cranks flood.

Simpson hadn't heard of the new federal law back then, but a state official told her to call the new U.S. Office of Surface Mining in Washington for help. The response: a $1 million dredging project to clear the spoil from Cranks Creek.

"I always had a lot of faith in the Commonwealth of Kentucky," Simpson observed recently as she walked the rebuilt but rickety wooden bridge over the dredged creek, which runs within 20 yards of her home. "But I've come to like the federals."

For Becky Simpson and her neighbors, though, the danger has not passed. Rocks and silt still spill out of the open gashes, and the creek bed is clogging again. The people of Cranks Creek still hold all-night vigils when it rains, haunted by fears of another flood.

"Those people won't be really safe unless they tear those mountains down," a federal official said.

Now Simpson and her neighbors' safety is back in the hands of Kentucky officials. So is the regulation of such companies as Donnie House's Black Magic.

Watt ruled recently that Kentucky had toughened its law to meet federal standards. Last month, he officially restored its primary enforcement power--"primacy," the federal law calls it--over an estimated 5,000 strip mines. Only four of the 24 coal states remain under federal control.

Now, as the law provided, only a diminished federal watchdog force remains in the coal fields to insure that Kentucky enforces its program. If the state fails, Washington can revoke its primacy, but that is unlikely, officials say. For the most part, the nation's number one coal-producing state is on its own again.

The "federals" who will watch over Kentucky's shoulder from now on are considerably different from the group that arrived here in 1978, and that, too, has prompted uncertainty for the state, for the people in the hollows and for industry.

Watt has loudly attacked the Carter-era strip mine inspection forces as "zealots," and has commissioned an extensive project to relax hundreds of pages of stringent regulations. His new OSM team has changed policies to give coal-state officials and coal companies new flexibility to deviate from federal standards.

Donnie House has read about these changes from his office near London, but he says he has yet to feel the effects. He and the leaders of the Kentucky Coal Association say the 1977 federal law changed their industry so dramatically that no change in administration--from Carter to Reagan, from Washington to Kentucky--will make a marked difference.

"The industry did abuse their power," House volunteered recently, adjusting the bill of his Black Magic cap on a bumpy drive through the coal fields outside London. "There's a creek down in Clay County that shows you why we got that law. It's filled up with surface mining spoil. It looks like they had a war down there. They've ruined a lot of land down here. They asked for it.

"I'm not sure they asked for what they got, though," he added.

What they got was a stringent, detailed law and regulations governing every step of strip mining--from applying for a permit to planting grass on restored hillsides. The law stated unequivocally that operators must restore stripped mountains to their "approximate original contour."

It forbade them to dump spoil down the mountainside when stripping away rocks and dirt to reach the coal. Neither rule had ever before been on the Kentucky law books.

Thanks to other requirements in the federal law, Kentucky's own strip mining laws are now tougher than ever before--even though Watt allowed more flexibility than his predecessor, Cecil D. Andrus. And Gov. John Y. Brown, a Democrat, has appointed an enforcer with a reputation for toughness named Elmore Grim to run the revamped state strip-mining office.

In addition, new permits required by the federal law spell out in detail how a miner must strip a hillside, protect the surrounding lands and reclaim the mountainside.

Donnie House took an old permit out of the filing cabinet in the yellow trailer that is his office and waved it in the air. It used to cost $5,000 to prepare a state permit, including engineering and technical costs, he said. "Now it's going to cost me $15,000."

And an engineering study to monitor ground-water effects, required under the revamped state program, could cost as much as $30,000 more, House went on. He contends that reclamation takes $10 out of the $27 he now gets for a ton of coal.

He had hoped that a high-speed drive by Watt and OSM officials to relax dozens of federal regulations would reduce the costs. But so far, most of the proposed rule changes remain snagged in the rule-making process or in the courts.

For a small operator, the pinch is more painful now because the coal market is depressed. House laid off four of his 16 employes last week--because of the coal glut, not because of regulations, he stressed. Even large companies have posted "No Applications Accepted" signs. The problems in the coal business seem much bigger than primacy and federal laws, he said.

But for the state government, primacy means responsibility, and officials say they feel pressure. The law requires Kentucky to issue new permits for more than 5,000 mining operations. If any environmental protection requirement is omitted from the permits, inspectors cannot enforce it.

"If the system breaks down here, we could see more abuse in the next 18 months than we saw since 1977," said Ed Grandis of the Citizens Mining Project, which monitors enforcement of the federal act from Washington.

And there is pressure of another sort. The political influence of the coal industry in Kentucky, the nation's number one coal-producing state, is legendary.

Coal employs more than 100,000 Kentuckians, by far the biggest industry in the state, and generates more than one-fifth of the money in the state treasury. Coal executives have been credited with persuading past governors to dump firebrand enforcers.

In East Bernstadt near London, House and about a dozen other small operators recently complained to their state legislator about an "overzealous" state inspector. Similar meetings have taken place about inspectors in other coal fields, officials say.

"They listen to us more in Frankfort than they do in Washington," House said.

A 65-year-old former strip-mine inspector named Bill Hays, now retired in Viper, Ky., knows this well.

The son of a coal miner, raised in a mining camp, Hays inspected Kentucky surface mines for more than a decade, bucking politicians and coal executives, eventually getting transferred to the state highway department because, he said, "I was really getting to some operators." The Carter administration appointed him to supervise eastern Kentucky in the first two years of the federal occupation.

Hays, who now teaches a course for townspeople who want to monitor strip-mine violations, said he was skeptical that Kentucky could resist industry pressure without a harsh federal enforcer at its back.

"They've got good people in Frankfort now, but they may not stay on when we get a new governor. Strip mining may even be an issue in the next election," he said. "Politics has kept the coal industry all-powerful in the past, and I believe it will again."

For all the fears and promises, officials say it will take at least a year before the new administration leaves its imprint on the mountainsides--the only place it counts. If the abuses of the past resume, the state and the Reagan administration will be stuck with the legacy.

As they say in eastern Kentucky: You can't hide a bad strip mine.