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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

Changes In Bonding Regulations Criticized As Inadequate To Protect Rights of Landowners  Posted: July 3, 2012

Monday, July 2, 2012

Michael Mullins
Regulations Coordinator
Department for Natural Resources
Division of Mine Permits
Energy and Environment Cabinet
#2 Hudson Hollow
Frankfort, Kentucky 40601

By email only Michael.Mullins@ky.gov

Re: 405 KAR 10:030 and 405 KAR 16:020

Dear Mr. Mullins:

These comments are submitted on behalf of the Kentucky Resources Council, Inc., a nonprofit environmental advocacy organization providing legal and strategic assistance to individuals, community groups, and local governments on matter relating to environmental protection and justice, and energy policy.

The Kentucky Resources Council membership includes numerous individuals residing in the coalfields of eastern and western Kentucky, including individuals whose aesthetic, property, and other protected interests have been adversely affected by the chronic failure of the Cabinet to require performance bonds to be posted that are adequate in amount to satisfy the requirements of the law.

In addition, the Council has represented numerous individuals whose interests have been directly affected by the failure of the Cabinet to require adequate bonding; interests in the full reclamation of their properties and in the return to productive use that have been damaged because of the lack of adequate bond in forfeiture and bankruptcy situations.

It is on behalf of those members and clients that the Council submits these comments, referenced as appropriate by regulation section or issue.

405 KAR 10:030

The issue of insurance policy deductibles has been a problem in those cases where the principal (permittee/operator) who is the insured has declared bankruptcy. The regulation should be revised to reflect that the insurance policy should have no deductible, or a separate bond or other surety should be posted to cover the deductible, in order that those injured in their person or property shall be fully protected in the event of permittee/operator insolvency or bankruptcy.

405 KAR 16:020

The “supplemental assurance” requirement should be calculated at maximum exposure for the disturbed area, rather than a flat fee.

405 KAR 10:015

I. THE PROPOSED REGULATION FAILS TO ESTABLISH BOND AMOUNTS SUFFICIENT TO ASSURE PROPER COMPLETION OF THE RECLAMATION PLAN, AS REQUIRED BY STATE AND FEDERAL LAW

Section 509 of the 1977 Surface Mining Control and Reclamation Act requires that a permit applicant shall

"File with the regulatory authority, on a form prescribed and furnished by the regulatory authority, a bond for performance payable, as appropriate, to the United States or to the State, and conditional upon faithful performance of all the requirements of this chapter and the permit. The bond shall cover that area of land within the permit area upon which the operator will initiate and conduct surface coal mining and reclamation operations within the initial term of the permit."

As to the amount of the bond, Section 509 provides that “[t]he amount of the bond shall be sufficient to assure the completion of the reclamation plan if the work had to be performed by the regulatory authority in the event of forfeiture and in no case shall the bond for the entire area under one permit be less than $10,000.”

SMCRA Section 509(a), 30 U.S.C 1259(a).

As the regulatory authority implementing a delegated program pursuant to 30 U.S.C. 1253, the Energy and Environment Cabinet is obligated to adopt laws “in accordance with” the provisions of 30 U.S.C. 1259, and regulations that are “consistent with regulations issued by the Secretary[.]”

KRS 350.060 requires, in relevant part, that the permit applicant shall file with the Cabinet a performance bond, and that

"The bond amount shall initially be computed to be sufficient to assure completion of reclamation if the work had to be performed by the cabinet in the event of forfeiture."

a. The Cabinet has acknowledged that the proposed revised bonding levels are not sufficient to assure completion of reclamation in the event of forfeiture.

As the regulatory authority managing a delegated program pursuant to Section 503 of SMCRA, the Cabinet is obligated to “implement, administer, enforce and maintain” the approved program in accordance with the Act, the Secretary’s regulations, and the provisions of the approved State program. 30 CFR 733.11.

In response to the May 1, 2012 Letter sent from the OSM Director Pizarchik, initiating the process of removing state authority and substituting a federal program for the state program, the Cabinet Secretary has acknowledged that the amounts proposed in 405 KAR 10:015 are not adequate to assure completion of the reclamation plans in the event of bond forfeiture. That admission is reflected in several statements in the June 4, 2012 Response. While acknowledging the problem, the Secretary states that:

"[W]e have determined that requiring adequate full-cost reclamation bonds for each coal mining operation in Kentucky is impractical and unaffordable to many operators in the Commonwealth. The cost of backfilling required on most of the coal operations in Kentucky is prohibitively expensive under a full-cost bonding regime. We strongly believe that this approach would create an economic situation that would cause multiple forfeitures of underbonded permits, thereby defeating what we wish to achieve."

The letter proceeds to describe a two-step process in which “new bonding protocols” will be implemented through 405 KAR 10:015 and the Cabinet will move forward to develop, under new legislation that would have to be approved by the General Assembly (which meets again in Regular Session in January 2013), a mandatory bond pool that would supplement the individual performance bonds “where individual bonds are insufficient to achieve adequate reclamation.”

The Cabinet Secretary acknowledges later in the same letter that the implementation of the new bonding protocols (which are contained in the proposed regulation) will reduce those cases where forfeiture occurs and the bond funds are inadequate to complete the reclamation plan, but that in 34% of the cases, based on a review by DNR applying these protocols to a list of permit forfeited between 2007 and 2011, the revised bonds would yet be insufficient to cover the reclamation costs.

Yet later in the letter, the Secretary acknowledges that the key factor in most of those cases where the bonds are deficient is the cost of earthmoving to backfill and grade the operations to the approximate original contour:

"Simply put, for most large mining operations the bond is not sufficient to fund the backfilling and grading necessary to achieve full reclamation if the operation was (sic)forfeited under the worst case scenario described in the permit."

b. The Cabinet lacks the statutory authority, both under KRS Chapter 13A and KRS 350.028(5) and 350.450, to adopt a regulation inconsistent with 30 USC 1259(a) and KRS 350.060(11).

Having acknowledged that, even with the application of the new protocols proposed in 405 KAR 10:015, the resulting bond would have been inadequate in 34% of the cases in which bond forfeitures have occurred during the last four years, and that the proposal is less than “full-cost” reclamation bonding, the Cabinet is constrained, both by state and federal law, from finalizing a regulation that does less than what is required under state and federal law and which is inconsistent with the Cabinet’s acknowledged obligations.

II. THE PROPOSED REGULATION SHOULD BE REVISED TO INCORPORATE FULL-COST BONDING, AS REQUIRED BY LAW

Notably missing from the response letter of the Cabinet to the Office of Surface Mining Reclamation and Enforcement, are several things. First, there is no recognition that the obligation for full-cost bonding has been in place in Kentucky since 1982, and yet despite the identification of the issue as a state program deficiency years ago, the problem has not been resolved.

Second, and more troubling, is the lack of recognition by the Secretary that the failure to require full-cost bonding has real costs that are borne on the backs of the landowners who trusted that the reclamation plans would be completed, that mining would be a temporary use of land and that a post-mining land use of higher or better value would be achieved, and that the Cabinet would protect their interests by requiring full-cost bonding. The concern with the economic vitality of mining operations if they are required to back their promise or reclamation with a performance bond, is misplaced and is a policy decision that Congress determined in 1977; and the Cabinet is without the statutory authority to amend the law to require proper reclamation bonds only where convenient or affordable for the permittee.

The letter misses a third, and fairly fundamental point, which is that the design of a mining plan is almost entirely under the control of the permittee, and since the most significant costs identified by the Cabinet are the haulage of material for backfilling and grading and completion of the reclamation plan, the permittee can control and significantly reduce those costs by maintaining more contemporaneous reclamation, thus reducing the bonding costs in the “worst-case scenario.”

CONCLUSION

The Council respectfully requests that the Cabinet modify the proposed bond amounts in order to require, either through a flat per-acre rate or, more preferably, a “pit-bond” approach that calculates the costs of movement of material for backfilling and grading at the most vulnerable point in the mine plan design (worst-case scenario), and adopt a timeframe for revision of performance bonds to meet the new requirements.

With respect to the bond pool, there is no need for additional statutory authority to create a mandatory pool, since the existing law already authorizes a voluntary bond pool. To the extent that the individual permittee believes that the posting of additional individual bonds is too expensive or that the bond is unavailable, the option already exists to apply for coverage of a portion of the mine bonding liability under the bond pool.

The Cabinet has acknowledged that the proposed regulation does not comply with state and federal regulations, nor with its obligations under 30 CFR 733.11. By proposing new bond amounts that the agency acknowledges will not, during the period before a new bond pool is established and funded (which would likely be a minimum of a eighteen months or more from present) assure proper reclamation plan completion for up to 34% of the permitted sites that will become forfeit, the Cabinet consigns those landowners to whom the promise of completion of the reclamation plan was made, to a loss of the value and utility of those lands, and opens the Commonwealth of Kentucky to potential liability for a knowing failure to properly implement state and federal law.

Thank you for your consideration of these comments and concerns.

Cordially,
/s/
Tom FitzGerald
Director

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