FitzGerald hits Kentucky’s new coal reclamation bond plan

Kentucky Resources Council head Tom FitzGerald, long a critic of the state’s coal mining industry and the state regulations that govern it, said proposed changes in Kentucky’s reclamation bond program are inadequate and fail to protect landowners from undone reclamation.

FitzGerald addressed the Governor’s Conference on Energy and the Environment in remarks posted Oct. 9 to the KRC’s website. The conference was held Oct. 8-9 at the Hyatt Regency in Louisville.

He initially thanked the state Department for Natural Resources (DNR), which oversees coal mine permitting in the state, for seeking out his input. He then launched into the state’s proposed changes in its reclamation bonding program that would continue a practice, common for coal mining states in the U.S., to save money for coal operators by not requiring them to put up reclamation bonds covering the full cost of reclamation.

Reclamation bonds, a form of insurance, need to be taken out by coal companies as part of the mine permitting process to cover at least some of the costs of site reclamation if the coal producer were to go out of business before reclamation is completed.

“The failure of the state to require full-cost reclamation bonding is a regulatory decision that may save costs to the coal industry, but it imposes costs of a different and more significant nature on landowners whose properties are mined and left unreclaimed,” FitzGerald said. “Just as the failure to conduct five-year reviews of air quality standards under the Clean Air Act would result in failure to maintain currency with the emerging health science regarding air pollution exposure, the conscious decision of the Beshear Administration to defer requiring full-cost performance bonds imposes costs on those least able to bear those costs, rather than on the industry that is in a position to greatly mitigate and reduce the bond liability through better mine planning.”

In response to a May 1 letter from U.S. Office of Surface Mining (OSM) Director Joseph Pizarchik, initiating the process of removing state authority and substituting a federal program for the state program, the secretary of the state Energy and Environment Cabinet, who oversees the DNR, acknowledged at several points in a June 4 response that the amounts proposed in the recently revised state statute were not adequate to assure completion of the reclamation plans in the event of bond forfeiture, FitzGerald noted.

FitzGerald said that while acknowledging the problem, the secretary stated 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 secretary’s letter then described a two-step process in which “new bonding protocols” would be implemented in the meantime. The Cabinet will then move forward to develop, under new legislation that would have to be approved by the General Assembly, which next meets again in regular session in January 2013, a mandatory bond pool that would supplement the individual performance bonds.

“The Cabinet acknowledged later in the same letter that the implementation of the new bonding protocols (which are contained in the proposed regulation) would 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,” said FitzGerald.

The secretary, by the way, is Leonard Peters, and the governor of Kentucky is Steve Beshear.

FitzGerald says three main things missing from state’s response

Notably missing from the secretary’s response to OSM are several things, said FitzGerald. “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 many years ago by the federal Office of Surface Mining, and for almost every year since, the problem remains unresolved,” he stated.

Second is the apparent lack of understanding or empathy by the secretary that the failure to require full-cost bonding has real costs that are borne by 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, FitzGerald said.

The letter also missed a third point, which is that mine plan design is mostly done by the permitting coal company, 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 reduce those costs by maintaining more contemporaneous reclamation, thus reducing the bonding costs in the “worst-case scenario,” FitzGerald added.

The KRC requested 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). “The Cabinet chose not to do so,” FitzGerald stated.

As for the creation of a new mandatory bond pool, FitzGerald’s view is that 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 costly 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, he added.

“My quarrel is not with the line workers of DNR, who have worked in the public interest at short pay trying to implement this program under difficult conditions,” said FitzGerald. “It is the lack of political leadership that has resulted in the adoption of new bond protocols 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 year or more from present) assure proper reclamation plan completion for up to 34% of the permitted sites that will become forfeit. In making that decision, the Cabinet has knowingly consigned 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 has opened the Commonwealth of Kentucky to potential liability for a knowing failure to properly implement state and federal law. During this interim, before each permit is properly bonded, every single mining operation under permit is vulnerable to a collateral challenge for failure to maintain adequate bonding, and the Cabinet is vulnerable under both state and federal law for failure to require such a bond.”

Cabinet files emergency plan while it works on solutions

The amount of bonds that surface coal mining operations must post to cover the cost of reclamation will be increasing under an emergency regulation, said the Cabinet in a May 4 announcement. It said it is taking this proactive step in order to avoid the possible loss of federal funds distributed by OSM to the DNR as part of a matching grant, to safeguard its ability to set bonding amounts for Kentucky mining operations, and to prevent a loss of federal funding for Kentucky’s Abandoned Mine Lands program.

The Cabinet said it has been working for nearly two years with representatives of the coal industry, the environmental community and the OSM to come up with a plan to address the bond inadequacy issue. This current plan is the result of several proposal submissions and discussions with OSM.

“Governor Beshear and I discussed this issue and we both agreed that, in order to move this process along, we must file this emergency regulation,” said Cabinet Secretary Peters. “This emergency regulation is a first step in providing adequate bonding that will more closely mirror the actual cost of reclamation should the [Cabinet] be required to perform the reclamation activities.”

The emergency regulation, filed with the Legislative Research Commission (LRC), went into effect immediately while the ordinary regulation goes through the normal review process, including public hearings and legislative subcommittee review.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.