[Federal Register Volume 69, Number 93 (Thursday, May 13, 2004)]
[Rules and Regulations]
[Pages 26500-26503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10746]


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DEPARTMENT OF THE INTERIOR

Office of Surface Mining Reclamation and Enforcement

30 CFR Part 917

[KY-244-FOR]


Kentucky Regulatory Program

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

ACTION: Final rule; non-approval of amendment.

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SUMMARY: We are not approving an amendment to the Kentucky regulatory 
program (the ``Kentucky program'') under the Surface Mining Control and 
Reclamation Act of 1977 (SMCRA or the Act). Kentucky transferred 
$3,000,000 from the Kentucky Bond Pool Fund (the Fund) on June 19, 
2003, and $840,000 on March 1, 2004, to the Commonwealth's General Fund 
for the 2002-2003 fiscal year.

EFFECTIVE DATE: May 13, 2004.

FOR FURTHER INFORMATION CONTACT: William J. Kovacic, Telephone: (859) 
260-8400. Internet address: [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background on the Kentucky Program
II. Submission of the Proposed Amendment
III. OSM's Findings
IV. Summary and Disposition of Comments
V. OSM's Decision
VI. Procedural Determinations

I. Background on the Kentucky Program

    Section 503(a) of the Act permits a State to assume primacy for the 
regulation of surface coal mining and reclamation operations on non-
Federal and non-Indian lands within its borders by demonstrating that 
its State program includes, among other things, ``a State law which 
provides for the regulation of surface coal mining and reclamation 
operations in accordance with the requirements of the Act * * *; and 
rules and regulations consistent with regulations issued by the 
Secretary pursuant to the Act.'' See 30 U.S.C. 1253(a)(1) and (7). On 
the basis of these criteria, the Secretary of the Interior 
conditionally approved the Kentucky program on May 18, 1982. You can 
find background information on the Kentucky program, including the 
Secretary's findings, the disposition of comments, and conditions of 
approval in the May 18, 1982, Federal Register (47 FR 21404). You can 
also find later actions concerning Kentucky's program and program 
amendments at 30 CFR 917.11, 917.12, 917.13, 917.15, 917.16 and 917.17.

II. Submission of the Proposed Amendment

    By telefax dated March 20, 2002, Kentucky asked us to informally 
review the proposed transfer of $3,000,000 from the Fund to its General 
Fund (Administrative Record No. KY-1528). By letter dated March 20, 
2002, we expressed concern about the transfer and directed Kentucky to 
submit the amendment formally. We also advised Kentucky that under 30 
CFR 732.17(g), the proposed transfer could not take effect until 
approved by OSM as an amendment to the approved State program 
(Administrative Record No. KY-1528). On March 18, 2003, we sent a 
second letter to Kentucky stating that we had become aware of the 
proposed transfer of funds in House Bill 269, which had been recently 
passed by the Kentucky General Assembly (Administrative Record No. KY-
1575). We reiterated our concerns with the transfer and referred to our 
letter dated March 20, 2002. We emphasized that ``no such change to 
laws or regulations shall take effect for purposes of a State program 
until approved as an amendment.''
    By letter dated May 22, 2003, Kentucky sent us an amendment to its 
program (Administrative Record No. KY-1580) under SMCRA (30 U.S.C. 1201 
et seq.). Kentucky submitted a portion of House Bill 269, the executive 
branch budget bill, promulgated by the 2003 Kentucky General Assembly. 
Specifically, Kentucky transferred $3,000,000 from the Fund established 
in Kentucky Revised Statute (KRS) 350.700 to the Commonwealth's General 
Fund for the 2002-2003 fiscal year. The transfer appears on page 225, 
line 21 and is listed under Part V, Section J, item 5 of House Bill 
269; the effective date of the transfer was June 19, 2003.
    By letter dated July 10, 2003, we requested additional information 
from Kentucky in the form of a financial analysis (Administrative 
Record No. KY-1584). We asked that the analysis specifically 
demonstrate that the transfer of funds would not adversely impact the 
Fund's ability to complete the reclamation plan for any area which may 
be in default at any time as required by 30 CFR 800.11(e). By letter 
dated August 14, 2003, Kentucky responded by stating the Madison 
Consulting Group would perform an actuarial review of the Fund 
(Administrative Record No. KY-1599). By letter dated March 3, 2004, the 
Department for Natural Resources (formerly the Department for Surface 
Mining Reclamation and Enforcement) transmitted the Kentucky Bond Pool 
Actuarial Report to us (Administrative Record No. KY-1615).
    The actuarial review covers the time period July 1, 2000, through 
June 30, 2003, and takes into account that $3,000,000 was transferred 
from the Fund on June 19, 2003, with an additional $840,000 to be 
transferred from the Fund on March 1, 2004. The full text is available 
for you to read at the locations listed above at ADDRESSES. The key 
findings of the report are summarized here. The report concluded that 
the Fund:
    1. Should be able to ``reasonably withstand the failure of any two 
of its member companies'' to be actuarially sound and viable on a long-
term basis (p. 7);
    2. Is ``currently not able to reasonably provide for the `two 
failure' funding scenario up to a 75 percent confidence level'' (p. 8);
    3. Needs to increase its assets ``so as to provide for potential 
liabilities and future growth'' (p. 8); and
    4. Is in a less favorable financial situation than the last 
analysis completed for the period ending June 30, 2000 (p. 8).
    We announced receipt of the proposed amendment in the July 16, 
2003, Federal Register (68 FR 41980), and in the same document invited 
public comment and provided an opportunity for a public hearing on the 
adequacy of the proposed amendment.

[[Page 26501]]

The public comment period closed on August 15, 2003.
    The additional information in the form of the actuarial analysis 
report was announced in the March 30, 2004, Federal Register (69 FR 
16511), when we reopened the public comment period that closed on April 
14, 2004. We received comments from three private organizations and two 
Federal agencies.

III. OSM's Findings

    Following are the findings we made concerning the amendment under 
SMCRA and the Federal regulations at 30 CFR 732.15 and 732.17. Any 
revisions that we do not specifically discuss below concern 
nonsubstantive wording or editorial changes.
    Kentucky transferred $3,000,000 from the Fund established in KRS 
350.700 to its General Fund on June 19, 2003, and an additional 
$840,000 on March 1, 2004. Neither of these transfers was submitted to 
OSM prior to implementation in accordance with 30 CFR 732.17(g). 
Section 509(c) of SMCRA and the Federal regulations at 30 CFR 800.11(e) 
authorize OSM to approve an alternative bonding system if that system 
achieves the objectives and purposes of the Federal bonding system. 
Under this authority, OSM approved the provisions of KRS 350.700 on 
July 18, 1986 (51 FR 26002), and March 9, 1987 (52 FR 7132). OSM also 
approved, in part, revisions to the Fund on August 18, 1992 (57 FR 
37086).
    In the July 18, 1986, notice, we approved Kentucky's bond pool as 
established in Senate Bill (SB) 130. The provisions of SB 130 
stipulated that bond pool monies would be collected and placed in an 
interest-bearing account and used for the following purposes only: (1) 
To reclaim permit areas covered by the Fund in the event of bond 
forfeiture; (2) to cover administrative costs of the Fund; (3) to fund 
audits and actuarial studies required for the Fund; and (4) to cover 
operating and legal expenses of the bond pool commission. In our 
approval, we noted that 30 CFR 800.11(e) authorizes approval of an 
alternate bonding system (ABS) if the regulatory authority will have 
available sufficient money to complete the reclamation plan for any 
areas in default at any time and if the ABS provides an economic 
incentive for the permittee to comply with all reclamation provisions. 
We found that the Kentucky ABS achieved the objectives and purposes of 
Section 509 of SMCRA in that it provided for funding in an amount 
sufficient to ensure the completion of the reclamation plan and it did 
not alter the approved Kentucky requirements for liability under the 
bond for the mining operation and the operator's liability period. We 
also noted that the Fund should accrue at a rate as to provide 
sufficient opportunity to observe the operation of the Fund to 
determine the adequacy of amounts and fees. We determined that the Fund 
should be sufficient to supplement reduced operator bonds to the extent 
necessary to reclaim defaulted sites to standards in the reclamation 
plan, at least until such time as there is sufficient data available to 
determine the adequacy of the program. If the Fund was found to be 
inadequate to supplement member bonds in the event of member default on 
reclamation obligations, or could not replenish itself at a sufficient 
rate to avoid delays in reclamation of forfeited sites, we would 
require an adjustment in the Fund limits and/or fees collected for the 
Fund (51 FR 26004-5). Subsequent revisions to Kentucky's bond pool 
provisions did not alter the basis for our original approval.
    Based on our review and the findings presented in the Kentucky Bond 
Pool Actuarial Report, we find that Kentucky's transfer of funds in the 
amount of $3,840,000 violates the basis for our 1986 approval by 
directing funds to other nonapproved uses. Further, such transfers are 
not consistent with the requirements of SMCRA and the Federal 
regulations at 30 CFR 800.11(e) that require that the ABS ensures that 
the regulatory authority has sufficient funds available to complete the 
reclamation plan for any areas which may be in default at any time. 
Therefore, we cannot approve the amendment. The transfer of funds 
seriously jeopardizes Kentucky's ability to provide for the completion 
of reclamation plans as required by the Federal regulations and 
represents a significant departure from the terms of OSM's approvals of 
Kentucky's alternative bonding system on July 18, 1986.
    To avoid any action required by 30 CFR part 732, we are therefore 
requesting that Kentucky do the following. Within 60 days of the date 
of publication of this decision in the Federal Register, Kentucky 
should either replenish the $3,840,000 into the Fund or provide us with 
a written description of a plan to accomplish this action. 
Additionally, until the Fund is replenished, Kentucky should not 
initiate any actions that further jeopardize the solvency of the Fund 
such as increasing the number of participants or adding acreage. In 
short, use of the Fund to provide new financial guarantees is hereby 
suspended.

IV. Summary and Disposition of Comments

Public Comments

    We solicited public comments on July 16, 2003, and provided an 
opportunity for a public hearing on the amendment. Two commenters 
responded. Because no one requested an opportunity to speak, a hearing 
was not held. Upon receipt of the actuarial study, we reopened the 
public comment period on March 30, 2004, for fifteen days (69 FR 
16511). Two commenters responded.
    The Coal Operators & Associates, Inc. (COA) submitted comments by 
letter dated August 6, 2003 (Administrative Record No. KY-1597). The 
COA encourages OSM to disapprove the transfer of $3,840,000 from the 
Fund to the General Fund because such transfers could make the bond 
pool financially unsound in that sufficient funds would not be 
available to cover any reclamation liability that might be incurred by 
a permittee's financial failure. We agree and are not approving the 
amendment as discussed in ``OSM's Findings'' above. The COA also 
submitted comments on April 2, 2004, (Administrative Record No. KY-
1620) in response to the reopened comment period. The COA reiterated 
its strong opposition to the transfer of funds and encouraged OSM to 
disapprove the amendment. As stated earlier, we are not approving the 
amendment.
    The Kentucky Resources Council, Inc. (KRC) submitted comments by an 
electronic mail message dated August 10, 2003 (Administrative Record 
No. KY-1598). The KRC states that the amendment must be disapproved 
unless and until Kentucky can produce an actuarial study demonstrating 
that the transfer of funds will not adversely affect the ability of the 
Fund to assure reclamation of all properties insured under the Fund. We 
agree and based, in part, on the findings presented in the Kentucky 
Bond Pool Actuarial Report, we are not approving the amendment as 
discussed in ``OSM's Findings'' above. The KRC further urges OSM to 
take prompt action to require that permitted operations obtain 
individual performance bond coverage if the alternative bonding 
mechanism fails to meet the requirements of Section 509(c) of SMCRA. 
Because we have not found the ABS in violation of SMCRA or the Federal 
regulations, we believe such action would be premature. Finally, the 
KRC states that in the event that the funds have already been 
transferred in violation of 30 CFR 733.11 and 732.17, OSM should direct 
that no further risks be incurred by the State bond pool, including no 
new operators and no new

[[Page 26502]]

acreage, until the State either restores the funds or demonstrates 
solvency of the Fund. We agree, as discussed in ``OSM's Findings'' 
above.
    Financial Assurance Consulting Services (FACS) submitted comments 
on April 14, 2004 (Administrative Record No. KY-1622), in response to 
the reopened comment period. FACS recommends that OSM not approve the 
amendment and offers four reasons in support of its recommendation. 
They are: (1) The proposed transfer of funds is not in accordance with 
Federal regulations and further erodes the bond pool not deemed 
currently sufficient by the actuarial report; (2) approval of the 
transfer would set a precedent that could jeopardize the integrity of 
other bonding systems approved by OSM, and may result in additional 
transfers on monies if legislatures view bond pools as an available 
source of funds; (3) Kentucky's bond pool funds must be available to 
the regulatory authority in the same manner conventional bonds are to 
guarantee reclamation, as required by SMCRA (The transfer of funds 
jeopardizes that availability.); and (4) the integrity of the Kentucky 
Fund must be protected and Kentucky should be required to do so. 
Kentucky should be required to reimburse the Fund for the amount of 
monies transferred. Also, FACS recommends a program amendment to assure 
that bond monies are not jeopardized, and suggests that an insured 
trust/escrow account be substituted for the current trust and agency 
account. Further, FACS recommends that OSM require Kentucky to 
implement some kind of procedure or mechanism for having the 
legislature reimburse the bond pool fund for monies already 
transferred. In response, we note that because we have not found the 
ABS in violation of SMCRA or the Federal regulations, we believe any 
actions such as these would be premature. Otherwise, however, we agree 
on all points and are not approving the amendments as discussed in 
``OSM's Findings'' above. We are also requesting that Kentucky 
replenish the Fund in the amount of the $3,840,000.

Federal Agency Comments

    According to 30 CFR 732.17(h)(11)(i), on July 16, 2003, we 
solicited comments on the amendment submitted on May 22, 2003, from 
various Federal agencies with an actual or potential interest in the 
Kentucky program. Two commenters responded. By letter dated July 28, 
2003, the Department of Labor, Mine Safety and Health Administration, 
commented that the proposed amendment had no apparent impact on its 
program (Administrative Record No. KY-1596). By an electronic mail 
message dated July 31, 2003, the U.S. Fish and Wildlife Service 
commented that it was concerned that Kentucky's proposed transfer of 
funds from the Bond Pool Fund to the General Fund sets ``an extremely 
bad precedence for future activities of this nature'' (Administrative 
Record No. KY-1595). We agree and are not approving the amendment as 
discussed in ``OSM's Findings'' above.

Environmental Protection Agency (EPA)

    Pursuant to 30 CFR 732.17(h)(11)(ii), OSM is required to obtain the 
written concurrence of the EPA with respect to those provisions of the 
proposed program amendment that relate to air or water quality 
standards promulgated under the authority of the Clean Water Act (33 
U.S.C. 1251 et seq.) or the Clean Air Act (42 U.S.C. 7401 et seq.). 
Because the provisions of this amendment do not relate to air or water 
quality standards, we did not request EPA's concurrence.

V. OSM's Decision

    Based on the above findings, we are not approving the amendment as 
submitted by Kentucky on May 22, 2003. We are requesting that within 60 
days of publication of this decision in the Federal Register, Kentucky 
either replenish the $3,840,000 into the Fund or submit to us a written 
description of a plan to accomplish this action. Additionally, Kentucky 
should not initiate any actions that would further jeopardize the 
Fund's solvency, such as increasing the number of participants or 
adding additional acreage. The use of the Fund to provide new financial 
guarantees is hereby suspended.
    To implement this decision, we are amending the Federal regulations 
at 30 CFR part 917 which codify decisions concerning the Kentucky 
program. We find that good cause exists under 5 U.S.C. 553(d)(3) to 
make this final rule effective immediately. Section 503(a) of SMCRA 
requires that Kentucky's program demonstrate that it has the capability 
of carrying out the provisions of the Act and meeting its purposes. 
Making this regulation effective immediately will expedite that 
process. SMCRA requires consistency of State and Federal standards.

Effect of OSM's Decision

    Section 503 of SMCRA provides that a State may not exercise 
jurisdiction under SMCRA unless the State program is approved by the 
Secretary. Similarly, 30 CFR 732.17(a) requires that any change of an 
approved State program be submitted to OSM for review as a program 
amendment. The Federal regulations at 30 CFR 732.17(g) prohibit any 
changes to approved State programs that are not approved by OSM. In the 
oversight of the Kentucky program, we will recognize only the statutes, 
regulations, and other materials we have approved, together with any 
consistent implementing policies, directives, and other materials. We 
will require Kentucky to enforce only approved provisions.

VI. Procedural Determinations

Executive Order 12630--Takings

    This rule does not have takings implications that warrant the 
preparation of a takings implication assessment. This determination is 
based on an analysis of the action being taken by OSM. Our decision not 
to approve the State program amendment and, therefore, the transfer of 
$3,840,000 from the Fund to the Commonwealth's General Fund will not 
affect the use or value of private property within the meaning of 
Executive Order 12630.

Executive Order 12866--Regulatory Planning and Review

    This rule is exempted from review by the Office of Management and 
Budget under Executive Order 12866.

Executive Order 12988--Civil Justice Reform

    The Department of the Interior has conducted the reviews required 
by section 3 of Executive Order 12988 and has determined that this rule 
meets the applicable standards of subsections (a) and (b) of that 
section. However, these standards are not applicable to the actual 
language of State regulatory programs and program amendments because 
each program is drafted and promulgated by a specific State, not by 
OSM. Under sections 503 and 505 of SMCRA (30 U.S.C. 1253 and 1255) and 
the Federal regulations at 30 CFR 730.11, 732.15, and 732.17(h)(10), 
decisions on proposed State regulatory programs and program amendments 
submitted by the States must be based solely on a determination of 
whether the submittal is consistent with SMCRA and its implementing 
Federal regulations and whether the other requirements of 30 CFR Parts 
730, 731, and 732 have been met.

Executive Order 13132--Federalism

    This rule does not have Federalism implications. SMCRA delineates 
the roles of the Federal and State governments with regard to the 
regulation of surface coal mining and reclamation operations. One of 
the purposes of SMCRA is to ``establish a nationwide program to protect 
society

[[Page 26503]]

and the environment from the adverse effects of surface coal mining 
operations.'' Section 503(a)(1) of SMCRA requires that State laws 
regulating surface coal mining and reclamation operations be ``in 
accordance with'' the requirements of SMCRA, and section 503(a)(7) 
requires that State programs contain rules and regulations ``consistent 
with'' regulations issued by the Secretary pursuant to SMCRA.

Executive Order 13175--Consultation and Coordination With Indian Tribal 
Governments

    In accordance with Executive Order 13175, we have evaluated the 
potential effects of this rule on Federally-recognized Indian tribes 
and have determined that the rule does not have substantial direct 
effects on one or more Indian tribes, on the relationship between the 
Federal Government and Indian tribes, or on the distribution of power 
and responsibilities between the Federal Government and Indian tribes. 
The basis for this determination is our decision on a State regulatory 
program and does not involve a Federal regulation involving Indian 
lands.

Executive Order 13211--Regulations That Significantly Affect the 
Supply, Distribution, or Use of Energy

    On May 18, 2001, the President issued Executive Order 13211 which 
requires agencies to prepare a Statement of Energy Effects for a rule 
that is (1) considered significant under Executive Order 12866, and (2) 
likely to have a significant adverse effect on the supply, 
distribution, or use of energy. Because this rule is exempt from review 
under Executive Order 12866 and is not expected to have a significant 
adverse effect on the supply, distribution, or use of energy, a 
Statement of Energy Effects is not required.

National Environmental Policy Act

    This rule does not require an environmental impact statement 
because section 702(d) of SMCRA (30 U.S.C. 1292(d)) provides that 
agency decisions on proposed State regulatory program provisions do not 
constitute major Federal actions within the meaning of section 
102(2)(C) of the National Environmental Policy Act (42 U.S.C. 
4332(2)(C)).

Paperwork Reduction Act

    This rule does not contain information collection requirements that 
require approval by OMB under the Paperwork Reduction Act (44 U.S.C. 
3507 et seq.).

Regulatory Flexibility Act

    The Department of the Interior certifies that this rule will not 
have a significant economic impact on a substantial number of small 
entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
This determination is based on an analysis of the action being taken. 
The decision by OSM not to approve the State program amendment and, 
therefore, the transfer of $3,840,000 from the Fund to the 
Commonwealth's General Fund is an administrative action that does not 
impose new obligations or requirements on small entities as determined 
by the size standard of the Small Business Administration at 13 CFR 
121.201.

Small Business Regulatory Enforcement Fairness Act

    For the reasons previously stated, this rule is not a major rule 
under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement 
Fairness Act. This rule: (a) Does not have an annual effect on the 
economy of $100 million; (b) Will not cause a major increase in costs 
or prices for consumers, individual industries, Federal, State, or 
local government agencies, or geographic regions; and (c) Does not have 
significant adverse effects on competition, employment, investment, 
productivity, innovation, or the ability of U.S.-based enterprises to 
compete with foreign-based enterprises.

Unfunded Mandates

    For the reasons previously stated, this rule will not impose an 
unfunded mandate on State, local, or tribal governments or the private 
sector of $100 million or more in any given year. [FEDREG][VOL]*[/
VOL][NO]*[/NO][DATE]*[/DATE][RULES][RULE][PREAMB][AGENCY]*[/
AGENCY][SUBJECT]*[/SUBJECT][/PREAMB][SUPLINF][HED]*[/HED]

List of Subjects in 30 CFR Part 917

    Intergovernmental relations, Surface mining, Underground mining.

    Dated: April 21, 2004.
Brent Wahlquist,
Regional Director, Appalachian Regional Coordinating Center.

0
For the reasons set out in the preamble, 30 CFR part 917 is amended as 
set forth below:

PART 917--KENTUCKY

0
1. The authority citation for part 917 continues to read as follows:

    Authority: 30 U.S.C. 1201 et seq.


0
2. Section 917.17 is amended by revising the section heading and adding 
paragraph (c) to read as follows:


Sec.  917.17  State regulatory program amendments not approved.

* * * * *
    (c) The amendment to Kentucky's program transferring $3,840,000 
from the Kentucky Bond Pool Fund to the Commonwealth's General Fund for 
the 2002-2003 fiscal year is not approved. The use of the Fund to 
provide new financial guarantees is hereby suspended.
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