OSMRE seeks input on changes to coal self-bonding program

In response to the increased market volatility and bankruptcies in the coal industry, the U.S. Office of Surface Mining Reclamation and Enforcement (OSMRE) announced Aug. 16 that it 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 those operations are completed.

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

Pizarchik laid out the goals for the rulemaking, including:

  • 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.
  • Minimize 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 said it 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.

The Ranking Member of the Senate Energy and Natural Resources Committee, Sen. Maria Cantwell, D-Wash., in an Aug. 16 statement commended this step by OSMRE.

“The Office of Surface Mining Reclamation and Enforcement is taking another critical step in protecting taxpayers, communities and the environment from bankrupt coal companies,” Cantwell said. “I applaud the Department of the Interior for moving ahead to prevent taxpayers and local communities from being the deep pockets on the hook to clean up coal mines.”

Since becoming ranking member last year, Cantwell has worked to toughen coal policies. She has made multiple calls to reform the federal coal program and to end the practice of self-bonding. Cantwell has questioned the Interior Department about the dangers of self-bonding and, along with another senator requested an investigation by the Government Accountability Office (GAO) into the risk to the taxpayer of self-bonding.

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.