CHAPTER 7 COAL MINE CLOSURE, RECLAMATION AND FINANCIAL ASSURANCE

• Jurisdiction: United States

Mine Closure, Financial Assurance, and Final Reclamation
(Nov 2009)
CHAPTER 7
COAL MINE CLOSURE, RECLAMATION AND FINANCIAL ASSURANCE
Denise A. Dragoo
James P. Allen
Snell & Wilmer L.L.P.
Salt Lake City, Utah

Denise A. Dragoo is a partner with the law firm of Snell & Wilmer, Salt Lake City, Utah. Ms. Dragoo received her Bachelor of Arts from the University of Colorado in 1973 with honors, is a 1976 graduate of the University of Utah, College of Law, and received a Masters of Law in Environmental Law and Land Use in 1977 from the Washington University School of Law, in St. Louis, Missouri. Ms. Dragoo is a member of the Leadership Council for the American Bar Association's Section on Environment, Energy & Resources ("SEER"), and a Fellow of the American Bar Foundation. She is a former member of the Executive Committee of the Rocky Mountain Mineral Law Foundation and is the Utah State Bar's Trustee to the Foundation. Ms. Dragoo is listed in THE BEST LAWYERS IN AMERICA (Natural Resources Law). Prior to entering private practice, Ms. Dragoo served as Special Assistant Utah Attorney General to the Utah Board and Division of Oil, Gas & Mining and was responsible for drafting the Utah Coal Mining and Reclamation Act. Ms. Dragoo practices before the Board of Oil, Gas and Mining, the Utah State Engineer, the United States Department of the Interior, Board of Land Appeals and state and federal courts. In September, 2009, she co-chaired the Rocky Mountain Mineral Law Foundation's Special Institute on Energy Development Access, Siting, Permitting, and Delivery on Public Lands and presented a paper on New NEPA Challenges. In February, 2006, Ms. Dragoo co-chaired the Special Institute on "NEPA and Federal Land Development." She chaired the Environmental Program for the 47th Annual Rocky Mountain Mineral Law Institute in Santa Fe, New Mexico, where she presented a paper on "What's New With NEPA? (Even After 30 Years)," 47 Rocky Mt. Min. L. Inst. 22 (2001). In November, 2002, she presented a paper on "Compliance with Land Use Planning and NEPA Prior to Issuance of Federal Oil and Gas Leases," RMMLF Special Institute on Regulation and Development of Coalbed Methane, Vol. 2002, No. 4, Paper 15A. She presented a paper in July, 2003, entitled "Federal Land Use Planning Primer Under FLPMA and NFMA", 49 Rocky Mt. Min. L. Inst. 22 (2003), at the 49th Annual Rocky Mountain Mineral Law Institute in San Diego, California. She co-authored a paper entitled The Designation of Coal Lands as 'Unsuitable' for Surface Coal Mining Operations", 27 Rocky Mt. Min. L. Inst. 339 (1981).

James P. Allen is an associate with the law firm of Snell & Wilmer, LLP, Salt Lake City, Utah. Mr. Allen received both his B.S. in Metallurgical Engineering and his law degree from the University of Utah (High Honors). He served as Editor in Chief, Journal of Land, Resources & Environmental Law, University of Utah S.J. Quinney College of Law and was awarded the Stephen Pierre Traynor Award for Excellence in Legal Writing. Following law school, he participated in the O'Hara Honors Program Fellowship in Natural Resources Law with the Utah Office of Attorney General. Prior to joining Snell & Wilmer, Jim served as counsel to the Utah Department of Natural Resources, including the Divisions of Oil, Gas & Mining, Forestry, Fire & State Lands, Wildlife Resources, Water Resources, and the Utah State Engineer. He was staff attorney and report editor for the Utah Mine Safety Commission created by Governor Jon Hunstman to assess Utah's role in regulation of mine safety in the aftermath of the Crandall Canyon Mine accidents of 2007. Mr. Allen appears regularly before the Utah Board of Oil, Gas & Mining, and represents clients on natural resource matters in state and federal district courts. Mr. Allen authored NEPA Alternatives Analysis: The Evolving Exclusion of Remote & Speculative Alternatives, 25 J. Land Resources & Envtl. L. 287 (2005).

Coal Mine Closure, Reclamation And Financial Assurance under the Surface Mining Control and Reclamation Act of 1977

November 5, 2009

Finding a means to assure site reclamation disturbed by coal mining was a key objective of Congress in enacting the Surface Mining Control and Reclamation Act of 1977 ("SMCRA").¹ Facing a large inventory of unreclaimed mining land, Congress was concerned that without some means to require reclamation, land would be left in an unproductive state unsuitable for future agricultural or other uses.² In response, Congress enacted separate sections of SMCRA, to assure reclamation of both previously mined lands and lands to be mined in the future. Under Title IV of SMCRA, Congress authorized the Office of Surface Mining Reclamation and Enforcement ("OSM"), to collect fees from operators of active mining operations which are deposited in a fund and used to reclaim abandoned mine lands disturbed prior to 1977.³ Under Title V of SMCRA, Congress conditioned issuance of new coal mine permits upon the posting of a reclamation performance bond.⁴

The Title V requirement of the operator to guarantee the costs of successful reclamation reads more like a property-right or land-use regulation, and less like an environmental-protection law. SMCRA requires operators, as a condition to receiving a

[Page 7-2]

permit, to submit a reclamation plan and bond to guarantee performance of reclamation.⁵ Operators are to plan for and perform the work necessary to leave the surface of the land in a condition that would be suitable for its post-mining land use.⁶ Depending on the plans of the surface owner, this may or may not contemplate restoration of the land's pre-mining features and vegetation following mine closure.⁷

This paper considers financial assurance for reclamation activities under SMCRA during three phases of the mine life. First, financial assurance as a condition of mine permit issuance and approval of the mining and reclamation plan. Second, phased reclamation and bond release and enforcement during active mine operation. Finally, post-closure reclamation obligations of mine operators and final bond release.

Reclamation Bond as a Condition of Mine Permit Issuance

The requirement for financial assurance of reclamation is integrated with the requirement that the operator submit a reclamation plan for approval by the regulatory agency as a condition of the mining permit. The reclamation plan is part of the permit application package for new mines and the significant revision of existing mines. The reclamation plan sets forth the area to be disturbed and how reclamation will be accomplished. It must identify the total land area subject to mining operations over the life of mine, and the size, sequence and timing of any tracts or sub-areas which may be individually permitted.⁸ The plan must identify the engineering techniques to control drainage, replace, grade, and stabilize soils, and restore vegetative cover and identify major

[Page 7-3]

equipment required to perform the plan.⁹ Mining may not proceed if reclamation is impossible,¹⁰ and the plan must provide for protection of surface and groundwater systems.¹¹

Financial assurance is required to guarantee that the activities identified in the reclamation plan can be successfully performed by the government if the mine operator in unable or unwilling to perform. The amount of financial assurance is based on an estimate of the cost per acre of the reclamation, and a detailed breakdown of the required equipment and man hours. In reviewing the bond estimate governmental agencies use standard industry cost estimating guides for equipment and labor necessary to accomplish reclamation.¹² The reclamation plan and cost estimate must be approved by the regulatory agency. The mine permit will not be issued and mining cannot commence until the operator posts a reclamation bond in the form and amount acceptable to the regulatory agency.

General Bond Requirements

SMCRA's required financial assurance of reclamation costs takes the form of a performance bond filed by the operator with the regulatory agency, payable to the United States or State, or in some circumstances, both, in an amount sufficient to cover the costs of successful completion of the reclamation activities in the approved reclamation plan.¹³ Specifically, the bond must be "sufficient to assure the completion of the reclamation plan if the work had to be performed by the regulatory authority" because of default by the

[Page 7-4]

operator and bond forfeiture.¹⁴ The bond is to be filed with the agency after the permit, with its mining and reclamation plan, has been approved, but before the permit is issued.¹⁵

The regulatory agency has the responsibility to periodically review and adjust the bond amount in light of expected future reclamation costs, and may require posting of an additional bond amount as a condition of continued operations.¹⁶ Similarly, the operator is entitled to replace the form and provider of surety so long as a proper performance bond is in place at all times.¹⁷ In the event a surety provider becomes insolvent or otherwise incapable of guaranteeing reclamation costs the regulatory agency permits continued operations for "a reasonable period" not more than 90 days while the operator obtains replacement bonding.¹⁸ If a facility remains without bond coverage at the end of the specified period, the operator is deemed to have permanently ceased operations and must commence backfilling and reclamation of the mine site.¹⁹

Bonding must be sufficient to provide for reclamation of the disturbed areas of land within the permit area upon which operations will be conducted during the term of the permit.²⁰ The performance bond may take one or a combination of three forms: a surety bond, a collateral bond, or self-bond.²¹ OSM rules define each of the three types as follows:

"Surety bond means an indemnity agreement in a sum certain payable to the regulatory authority, executed by the...