[Federal Register Volume 67, Number 96 (Friday, May 17, 2002)]
[Proposed Rules]
[Pages 35070-35073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12462]


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DEPARTMENT OF THE INTERIOR

Office of Surface Mining Reclamation and Enforcement

30 CFR Parts 773, 780, 784 and 800

RIN 1029-AC05


Bonding and Other Financial Assurance Mechanisms for Treatment of 
Long-Term Pollutional Discharges and Acid/Toxic Mine Drainage (AMD) 
Related Issues

AGENCY: Office of Surface Mining Reclamation and Enforcement, Interior.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: We are seeking comments on what types of financial guarantees 
will best ensure adequate funding for the treatment of unanticipated 
long-term pollutional discharges, including acid or toxic mine drainage 
(collectively referred to as AMD), that develop as a result of surface 
coal mining operations. Specifically, we are interested in views from 
all parties on how we can best address the proper level of treatment 
and number of years to use in calculating financial assurance amounts 
for AMD, appropriate financial mechanisms to cover treatment costs, and 
suggestions on appropriate enforcement in cases where financial 
assurance is not fully adequate for the long term, but AMD is still 
being treated. We also invite comment on

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whether codification of our AMD policy statement would be helpful.

DATES: To ensure consideration, we must receive your comments on or 
before July 16, 2002.

ADDRESSES: You may mail or hand carry comments to the Office of Surface 
Mining Reclamation and Enforcement, Administrative Record, Room 101, 
1951 Constitution Avenue, NW., Washington, DC 20240. You may also e-
mail comments to [email protected].

FOR FURTHER INFORMATION CONTACT: Ruth Stokes, Program Support 
Directorate, Office of Surface Mining Reclamation and Enforcement, on 
202-208-2611.

SUPPLEMENTARY INFORMATION:

I. Background

What Do the Law and Related Regulations Require?

    Section 509(a) of the Surface Mining Control and Reclamation Act of 
1977 (SMCRA or the Act), requires that each applicant for a permit to 
conduct surface coal mining operations file a performance bond to 
guarantee compliance with all requirements of the Act and the permit. 
The Act specifies that the bond amount must reflect the probable 
difficulty of reclamation, considering a number of factors, one of 
which is hydrology. It also requires that the bond be sufficient to 
assure completion of the reclamation plan if the work had to be 
performed by the regulatory authority.
    Paragraphs (b) through (d) of section 509 of the Act specifically 
recognize surety bonds, self-bonds, cash, negotiable Federal or State 
bonds, and negotiable certificates of deposit as acceptable forms of 
bond. Section 509(e) of the Act requires that the regulatory authority 
adjust the bond terms and amount from time to time as affected acreage 
increases or decreases or when the cost of future reclamation changes. 
Our regulations implementing the requirements of the Act may be found 
in the Code of Federal Regulations at 30 CFR part 800.
    When a regulatory authority issues a permit, the regulatory 
authority envisions that the permittee will conduct mining in 
accordance with the approved permit and the operation will meet all 
requirements of the Act and the regulatory program. In practice we have 
found that events occur during mining and reclamation that were not 
anticipated during development of the reclamation plan. Some of those 
events result in violations of the Act or regulatory program and 
corrective actions can be taken to eliminate the violation. Other 
unanticipated events, such as the formation of acid or toxic mine 
drainage, require long-term treatment and are not easily addressed. For 
purposes of this Advance Notice, the acronym ``AMD'' includes both acid 
and toxic drainage from surface coal mining and reclamation operations, 
consistent with our AMD Policy Statement.
    We have been involved in litigation in recent years pertaining to, 
among other things, the requirement for financial assurance for the 
long-term treatment of AMD, and the evaluation of the adequacy of the 
financial guarantee for long-term treatment. Our current regulations 
recognize certain acceptable forms of bond. We did not envision the 
complexity of the issues associated with financial assurances for long-
term treatment of AMD. Those complexities suggest the need for 
financial mechanisms more appropriate to address a long-term commitment 
to treat AMD.
    We are issuing this Advance Notice of Proposed Rulemaking to seek 
comment on whether we should codify the following requirements: (1) 
That only permits where the operation is designed to prevent off-site 
material damage to the hydrologic balance and minimize both on- and 
off-site disturbances to the hydrologic balance will be approved, and 
(2) that financial responsibility associated with AMD should be fully 
addressed. We are also requesting input from all parties on how we can 
best address the proper level of treatment and number of years to use 
in calculating financial assurance amounts for AMD, appropriate 
financial mechanisms to cover costs, and suggestions on appropriate 
enforcement in cases where financial assurance is absent or not fully 
adequate for the long-term, but AMD is still being treated.

How Does This Notice Relate to our AMD Policy Statement?

    The prevention of future AMD from coal mining operations into 
surface and ground waters and the remediation of mining-related 
pollutional discharges are high priorities of the Office of Surface 
Mining Reclamation and Enforcement. To advance these priorities, we 
developed policy goals, objectives, and strategies to protect the 
hydrologic balance in coal mining areas from the effects of AMD. This 
was done after extensive input from primacy States, other Federal 
agencies, the environmental community, industry representatives and 
coalfield citizens concerned about AMD. The policy statement adopted in 
March 1997 can be found in its entirety on our home page at http://www.osmre.gov/amdpol.txt, or a copy may be obtained from the individual 
listed under FOR FURTHER INFORMATION CONTACT.
    Our policy statement identified goals for environmental restoration 
and environmental protection. Under each goal were objectives. The 
policy principles that we are considering codifying under this effort 
pertain to Objectives 1 and 2 under the goal ``Environmental 
Protection'' as follows.
    Objective 1: Only approve permits where the operation is designed 
to prevent off-site material damage to the hydrologic balance and 
minimize both on- and off-site disturbances to the hydrologic balance. 
In no case should a permit be approved if the determination of probable 
hydrologic consequences or other reliable hydrologic analysis predicts 
the formation of a postmining pollutional discharge that would require 
continuing long-term treatment without a defined endpoint.
    Strategy 1.1--Predictive techniques should be used to identify and 
characterize the site-specific acid-or toxic-forming conditions posing 
a risk of AMD formation.
    Strategy 1.2--Each mining and reclamation plan should specifically 
address identified acid- and toxic-forming conditions and demonstrate 
how off-site material damage will be prevented and on- and off-site 
disturbances minimized without the use of techniques that require long-
term discharge treatment without a defined endpoint.
    Strategy 1.3--Each permit should include adequate measures, such as 
prevention and mitigation technologies, to control and manage 
identified acid- or toxic-forming AMD conditions and to protect the 
quality and quantity of surface and ground water systems during mining 
and reclamation.
    Strategy 1.4--Regulatory authorities should establish criteria to 
measure and assess material damage. Material damage guidelines, to be 
applied on a case-by-case basis, are necessary to effectively assess 
the adequacy of mining and reclamation plans in addressing AMD 
prevention.
    Strategy 1.5--Approved permits should include a monitoring plan for 
determining whether the operation and reclamation plans are being 
effectively implemented.
    Objective 2: Financial responsibility associated with AMD should be 
fully addressed.
    Strategy 2.1--Prior to permit issuance, adequate financial 
assurance should be provided to ensure completion of the hydrologic 
reclamation plan.

[[Page 35072]]

    Strategy 2.2--If, subsequent to permit issuance, monitoring 
identifies acid- or toxic-forming conditions which were not anticipated 
in the mining and operation plan, the regulatory authority should 
require the operator to adjust the financial assurance.
    Strategy 2.3--Where inspections conducted in response to bond 
release requests identify surface or subsurface water pollution, bond 
in an amount adequate to abate the pollution should be held as long as 
water treatment is required, unless a financial guarantee or some other 
enforceable contract or mechanism to ensure continued treatment exists.
    This is our long-standing policy, which we believe correctly 
interprets the law. We invite comment on whether codification of these 
principles would be helpful to the public.

II. Level of Treatment To Use in Calculating Financial Assurance 
Amounts for AMD

    Both section 509(a) of SMCRA and the implementing regulations at 30 
CFR 800.14(b) require that the amount of bond posted for a permit be 
sufficient to assure completion of the reclamation plan if the work has 
to be performed by the regulatory authority in the event of forfeiture. 
If post-mining pollutional discharges develop, the permittee's 
reclamation liability extends to the abatement or long-term treatment 
of the discharge and continues as long as treatment is needed. Before 
treatment costs can be calculated, the appropriate treatment standard 
must be established.
    Under section 702(a) of SMCRA and court decisions interpreting that 
provision, we have no authority to deviate from effluent limits and 
other water quality standards established under the Clean Water Act. In 
our experience, National Pollutant Discharge Elimination System (NPDES) 
permitting authorities generally establish effluent limits for bond 
forfeiture sites on a case-by-case basis after forfeiture has occurred. 
The SMCRA regulatory authority will not know what those limits are at 
the time that treatment costs must be determined to establish the 
appropriate amount of the bond or other financial assurance. However, 
the SMCRA regulatory authority does have an independent responsibility 
under sections 510(b)(3) and 515(b)(10) of SMCRA to protect the 
hydrologic balance. Accordingly, we are seeking input on the 
appropriate level of treatment upon which financial assurance amounts 
should be calculated.
    Specifically:
    (1) What standards should be used to determine water treatment, 
such as effluent limits or other water quality standards, in the 
calculation of financial assurance amounts?
    (2) What role should we, States, and permittees have in calculating 
treatment costs?

III. Number of Years To Use in Calculating Financial Assurance Amounts 
for AMD

    Another major factor in the calculation of financial assurance 
amounts for AMD is the length of time. In rare cases, technical 
analysis of a given discharge may be able to define (predict) the time 
over which pollution loading will cease so that treatment will no 
longer be needed. Absent that determination, the discharge is an 
indefinite or ``perpetual'' liability for the permittee.
    Over the past several years, we have been discussing this issue 
with state regulatory authorities. The application of bonding to 
treatment of discharges requires that the length of time be specified 
in calculating overall long-term treatment costs. This is necessary in 
order to establish revenue needs based upon the present value of future 
annual treatment costs. We, in Tennessee, and several state regulatory 
authorities have been working with bond adjustment requirements to 
address the cost of long-term treatment of pollutional discharges, 
including interest-bearing options such as trust funds. At this time, 
we are seeking input on the appropriate number of years upon which 
financial assurance amounts should be calculated.
    Specifically:
    (1) What timeframe should be used to calculate long-term treatment 
costs for those sites without a defined endpoint? Please provide a 
detailed rationale for your suggested timeframe.
    (2) What role should we, States, and permittees have in determining 
the timeframe for calculating treatment costs?

IV. Financial Mechanisms Available To Assure Funding for Long-Term 
Treatment of AMD

    The bond forms prescribed in 30 CFR 800.12 (collateral bond, surety 
bond, and self-bond) do not necessarily lend themselves well to bonds 
for water treatment costs because of the lengthy timeframes involved 
and uncertainties associated with the AMD treatment obligations. In 
addition, surety and collateral bonds may involve high up-front costs 
or collateral requirements.
    We discussed the acceptance of other types of financial mechanisms 
when we stated in the preamble to 30 CFR 700.11(d) that jurisdiction 
over a mine site with a pollutional discharge may be terminated only if 
``a contract or other mechanism enforceable under other provisions of 
law'' provides for treatment and all other performance standards are 
met. See 53 FR 44361-62; November 2, 1988. We also recognized this 
principle in our March 31, 1997, AMD Policy Statement.
    We are seeking input on what types of financial instruments or 
combinations of instruments are both appropriate and available for 
financial assurance of long-term treatment of AMD. We encourage 
commenters to address the following questions:
    (1) What types of financial instruments are available to cover 
long-term AMD treatment costs? How do they work? What are the optimal 
terms for each? What is the estimated annual cost to the permittee?
    (2) Is insurance coverage an option to cover unanticipated AMD 
costs? If so, please provide the details, estimated cost, and the 
timing of when a policy should be obtained.
    (3) If available, should an insurance policy be considered as a 
backup to other forms of financial assurance?
    (4) What types of contracts and other enforceable mechanisms would 
provide adequate assurance of continuing treatment?
    (5) Please describe any changes in, or new, regulations and/or 
statutory provisions that you believe would be necessary to implement 
your suggestions.

V. Enforcement

    At present, when a postmining pollutional discharge requiring long-
term treatment develops, our AMD Policy and regulations (30 CFR 800.15) 
provide that the regulatory authority must order the permittee to 
adjust the bond to reflect the increased reclamation costs. However, 
this approach may not be the most effective or environmentally 
beneficial strategy. First, there may no longer be any active mining 
within the permit area when the discharge develops. Under those 
conditions, the regulatory authority has less leverage to obtain the 
increased bond amount because the prohibition in 30 CFR 800.11(c) 
against disturbance of areas before posting the required performance 
bond has no impact. Second, insisting on immediate posting of the 
increased bond amount may provide permittees who are treating the 
discharge but cannot afford the increased bond an incentive to cease 
operations and abandon the site rather

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than continue the treatment of the discharge.
    We are seeking comments on appropriate enforcement of the financial 
assurance requirement for treatment of discharges that occur after 
mining begins. Specifically:
    (1) What enforcement action should be taken in situations where a 
pollutional discharge develops while mining is still occurring and the 
permittee is treating the discharge but the bond or other financial 
assurance is inadequate to ensure treatment of the discharge in the 
event of forfeiture?
    (2) What enforcement action should be taken in situations where a 
pollutional discharge develops after mining is completed and the 
permittee is treating the discharge but the bond or other financial 
assurance is inadequate to ensure treatment in the event of forfeiture?
    (3) Should we develop timeframes for bond adjustment (and sanctions 
for non-adjustment) similar to those of the bond replacement 
regulations at 30 CFR 800.16?
    We welcome your comments on these and other relevant issues on the 
costs of AMD treatment and forms of financial assurance.

    Dated: May 10, 2002.
Rebecca W. Watson,
Assistant Secretary--Land and Minerals Management.
[FR Doc. 02-12462 Filed 5-16-02; 8:45 am]
BILLING CODE 4310-05-P