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OSMRE to begin rulemaking on self-bonding for coal mines

World Coal,

In response to the increased market volatility in the coal industry, and recent bankruptcies and increasing public concerns, the Office of Surface Mining Reclamation and Enforcement (OSMRE) will begin the rulemaking process to strengthen regulations on self-bonding to help ensure that companies are financially able to restore lands disturbed by coal mining when extraction operations are completed.

“The US coal market is dramatically different from when our self-bonding regulations were last updated 30 years ago,” said OSMRE Director Joe Pizarchik. “This is a turbulent time of energy transformation in our country, of declining use of coal and increased use of cheaper natural gas and renewable energy. These conditions have exposed the limitations of the current self-bonding rule and we have a responsibility to protect the public’s interest by keeping up with these changes.”

The rulemaking decision follows a citizen’s petition from WildEarth Guardians asking OSMRE to consider amending its regulations on financial assurances, specifically to prevent coal companies with a history of financial insolvency, and their subsidiaries, from using ‘self-bonding’ as a means to ensure disturbed lands are restored after mining operations are completed.

The Surface Mining Control and Reclamation Act (SMCRA) defines three major types of bonds to ensure reclamation is carried out: corporate surety bonds; collateral bonds (such as cash or certificates of deposit); or self-bonds, which are legally binding corporate promises without separate surety or collateral, available only to permittees who meet certain financial tests.

OSMRE received more than 117 000 comments during an extended public comment period on the WildEarth Guardians’ petition that ended on 20 July, the vast majority of commenters favouring a rulemaking. Based on those comments and a thorough analysis of current market conditions supported by Energy Information Agency data, OSMRE determined that the petitioners set forth facts, technical justification and law establishing a reasonable basis for amending its self-bonding regulations.

The goals for the rulemaking include:

  • Modify self-bonding eligibility standards, including for parent and other corporate guarantors, to include criteria that are more forward looking, instead of only focusing narrowly on past performance.
  • Provide for an independent third party review of self-bonded entities’ annual financial reports and certification of the current and future financial health of self-bonded entities.
  • Establish the percentage of all self-bonds to be supported by collateral that is not subject to any other lien or used as collateral for any other liability.
  • Provide diversification for financial assurance/reclamation bonds for each mine to prevent a single entity from providing 100% of the bond for a mine (except for cash bonds).
  • Provide regulatory authorities with better tools for obtaining replacement bonds when a self-bonding entity no longer meets the self-bonding eligibility criteria.
  • Minimise the risks associated with corporate sureties that rely on a cash flow basis to cover the cost of reclamation when its bonds are forfeited.

OSMRE will also explore the possibility of new financial assurance instruments to provide the coal industry with more financial assurance options to enhance flexibility, and the creation of incentives for mine operators to complete timely reclamation and apply for final bond release, including a financial assurance release schedule. In the coming days OSMRE will file a Federal Register Notice officially announcing its intent to start rulemaking on self-bonding.

OSMRE will seek input from state regulatory authorities and other stakeholders for suggestions on how to improve self-bonding regulations to make it easier for State regulatory authorities to ensure they have adequate financial assurance to complete reclamation of each mine. While OSMRE directly regulates opencast coal mining and reclamation activities in 12 states, there are 24 states that have primacy for surface coal mining regulation –they have developed and obtained Secretarial approval of regulatory programs that meet SMCRA requirements and are no less effective than the federal regulations in achieving those objectives.

“We know more today about financial assurance than 35 years ago and our current out-of date self-bonding regulations aren’t working as intended,” Pizarchik said. “Together with state regulatory authorities that allow, or are considering allowing self-bonds as a form of financial assurance, we can write a better rule, and together we can protect the public’s interest and the environment.”

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