Reclamation Bonds and the "War on Coal"

If you’re in the coal business, or any mining business, you’ve undoubtedly heard the rumblings from the Commonwealth of Kentucky about huge increases in reclamation bond amounts required by Federal regulators for mine reclamation. The prospect of reclamation bond requirements increasing by double, triple or more, makes any mine operator, big or small, take a deep breath.

The subject has even garnered the attention of the two U.S. Senators from Kentucky, Mitch McConnell and Rand Paul, who are on record saying that the Environmental Protection Agency is “waging a war on coal” by its recent actions, or inaction, with the permitting process. The agency has both refused to process new permit requests and even rescinded existing permits. The Senator’s co-sponsored U.S. Senate Bill 468 seeks to handcuff the regulators to some degree as they see this issue as a huge overreach by the EPA and a “back-door means of shutting down coal mines.”

The Surface Mining Control and Reclamation Act of 1977 requires that anyone who obtains a coal mining permit must post a reclamation bond to ensure that the regulatory authority will have sufficient funds to reclaim the site if for any reason the permittee fails to complete the reclamation. Similarly, other mining permits (precious metals and hard rock mining) require reclamation guarantees as part of the permitting process and could be next in line for increased regulatory scrutiny.

The recently released “Final Report on the Adequacy of Kentucky Performance Bond Amount” by the Lexington Field Office of the Office of Surface Mining Reclamation and Enforcement (OSM) makes clear the view of Federal regulators that current bond calculation methods are inadequate. The OSM also insists that State regulators must address the issue sooner rather than later. In the report, the OSM notes that “if progress toward adequate bonding is not made [by the DNR], OSM will take actions necessary to remedy the issue as a programmatic concern…”

Although we foresee bond amounts being increased in the near future, we don’t believe they will be increased by the magnitude of some rumors within the industry. The tricky part of this whole equation is determining the reaction of each surety/insurance company presently providing reclamation bonds. This is especially true if the regulations are modified on a retroactive basis. Surety capacity is credit capacity. Some bonding companies, if not most, may take the position: Double bond amounts = double premiums and when applicable, double bond amounts = double collateral requirements.

As the dust settles in the coming months on this issue, my sense is few on either side of the argument will be happy with the outcome…but, balance and reason will prevail OR the lights will go out.

Brook Smith
President
Smith Manus Surety Bonds