By: Blair M. Gardner
The federal Office of Surface Mining (OSM) surprised no one on September 7 when it announced that it would commence rulemaking to revise its regulations governing the use of self-bonds at coal mining operations (81 Federal Register 61612). The announcement formally approves a petition filed in March by the predominantly Western environmental organization, WildEarth Guardians, to prohibit the use of self-bonds. Given OSM’s views on bonding expressed last year in its proposed Stream Protection Rule (80 Federal Register 44436, July 27, 2015), it is no surprise that OSM granted the petition. Although OSM denied the immediate prohibition on self-bonding sought by WildEarth Guardians, there is no reason to believe that self-bonding will remain a viable financial option for coal companies when it commences rule-making.
Bonding to guarantee the performance of reclamation is required by §509 of SMCRA. In most states, bonding has always been treated as an unpleasant and distasteful topic. Generally, the operator’s bond or pledge to reclaim is supported by an agreement with a third-party surety. Subsection (c) of §509, however, allows a state to accept a bond without a third-party surety if an operator has demonstrated a history of financial solvency. Neither the states nor OSM have been comfortable with self-bonding, probably because financial solvency is a principle demonstrated by financial documents which OSM and most state agencies are ill-equipped to understand. Nevertheless, the major mining states have authorized self-bonding since the last major promulgation of OSM regulations in 1983. Until the recent bankruptcies which have plagued the domestic coal industry, few arguments were heard against the practice.
The WildEarth Guardians have a well-documented history of opposing all coal mining everywhere. It is not surprising that it sought an immediate ban on the use of self-bonds. In support of its petition it generated a post-card campaign which resulted in 99% of the 117,191 comments which OSM received as supporting its petition. OSM will likely interpret this result the way that North Korean leadership understands election results in that country.
What actually is fascinating is OSM’s perception and description of the economic landscape which supports the petition.”It is undisputed that the coal market is dramatically different from when our current self-bonding regulations were drafted [True]. Diminished global demand for coal [Very false], competition from low cost shale gas[True], and the unprecedented and continuing retirement of coal-fired power plants [promoted by the current Administration] are clear signs that the energy industry is undergoing a major transformation.” (81 Federal Register 61614). World demand for coal is much higher today than when SMCRA was enacted in 1977 and the retirement of 14 gigawatts of coal-fired power in 2015 has not occurred because the owners of those plants wanted or needed to retire them.
If OSM does not understand the underlying background of energy markets (and there is little in the announcement which reflects that it does), there is little reason to expect that anything that it proposes will make a self-bond program a useful financial instrument to support coal mining. Last July, OSM was clear in its proposed Stream Protection Rule that self-bonds would not be acceptable methods to support reclamation of streams and water quality following mining. The increased financial burdens which it proposed in that rule likely will be found into whatever proposal OSM eventually makes for self-bonds.
This article was authored by Blair M. Gardner, of Jackson Kelly, PLLC.