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Pennsylvania Department of Environmental Protection

Office of Mineral Resources Management

 

 

Full Cost Bonding

For

Land Reclamation on Pennsylvania’s Coal Mine Sites

 

December 23, 1999

 

Draft

 

Executive Summary

Full Cost Bonding for Land Reclamation on Pennsylvania’s Coal Mine Sites is the regulatory program for calculation of the amount of bond necessary for specific mine sites. The Surface Mining and Reclamation Act requires the amount be based on the total estimated cost to the Commonwealth of completing the approved reclamation plan. Previously bond amounts for coal mine sites were determined using an Alternate Bonding System (ABS).

Evaluation of the ABS concludes it is not the best way to ensure mine site reclamation. The ABS consists of a releasable site bond posted by mine operators and a bond pool. Monies in the pool come from collection of forfeited bonds, a non-refundable fee of $100 per acre mined, penalties, and interest.

The ABS has many shortcomings. There is a lack of parity between different categories of mining operations. Consequently, in the event of forfeiture, the contributions to the pool by some operators are not proportionate with contributions from others. For example, the Commonwealth’s cost to reclaim a Coal Refuse Disposal site, originally bonded at only $1,000 per acre, starts at $20,000 per acre. Conversely, a surface mine, originally bonded at $3,000 per acre, may cost the Commonwealth less than $5,500 per acre to reclaim.

Parity is also lacking within categories of mining. Operations with large open pit areas are much more expensive to reclaim than the average mine site. However, both pay the same fee and both use the same per acre bond rates.

Operators who do not intend to stay in business find it simply cheaper to forfeit bonds than complete the reclamation required by law. The result is relatively high forfeiture rate of 10% for Pennsylvania’s industry.

Given the above, it is not surprising that the ABS has a current $7.5 million deficit. Projected deficits are estimated in excess of one million dollars per year. These deficits only cover the land reclamation that was the ABS’s original design.

However, OSM has changed their interpretation of federal requirements. It now dictates that ABS bond pools must cover the entire costs for treating water on forfeiture sites in perpetuity, without limitation. Continuation of the current ABS in the long term plus a decline in the number of active operators and increasing annual costs for treating water on forfeited sites means fewer and fewer operators will be paying higher and higher fees into the bond pool. Eventually this cycle will collapse the ABS.

Full Cost Bonding methodology uses the mine operator’s description of the maximum amount of reclamation needed during the term of the permit. These dimensions are combined with ‘bond rate guidelines’ to calculate the total bond. Bond rate guidelines are developed by DEP using actual bid costs submitted for abandoned minelands reclamation contracts. The guidelines are published annually in the Pennsylvania Bulletin.

Full Cost bonds are a prediction of the magnitude of the reclamation responsibility. Some activities previously unaccounted for in the calculation of bond amounts are now considered. Because of Commonwealth contracting requirements, including a prevailing wage requirement, industry reclamation costs are cheaper.

Full Cost Bonding provides the financial incentive for operator’s to complete their sites, thus reducing the forfeiture rate. However, in the event of forfeiture, Full Cost Bonding provides incentive for industry to complete the reclamation, provides for a private sector solution and reduces the need for government contracting to complete the reclamation.

 

Preamble

Mining coal in America is regulated on a federal level through the Federal Surface Mining Control and Reclamation Act of 1977 (30 U.S.C.A. 201). Under this act the United States Department of the Interior; Office of Surface Mining, Reclamation and Enforcement (OSM) can delegate primary regulatory authority to individual states. This is known as ‘primacy’. To get primacy the states laws and regulations must be at least as effective as federal law and regulation. Pennsylvania received primacy in July 31, 1982. The Department of Environmental Protection (DEP) is charged with administering the coal mining regulatory program.

For over 60 years Pennsylvania’s law has regulated surface mining, and has required some degree of land reclamation. For most of the same period it has also required bonds, in changing amounts and formats, to insure land reclamation. The current requirements for both land reclamation and bonding are found in The Surface Mining and Reclamation Act (SMCRA)(52 P.S. 1396.1-1396.31) and the Coal Refuse Disposal Control Act (CRDA)(52 P.S. 30.51 – 30.66). Generally, these acts require a bond to be filed prior to commencement of mining, and to be conditioned ‘…that the permittee shall faithfully perform all of the requirements…’ (SMCRA, Sec 4.2 (L)(d))

SMCRA & CRDA provide for two different bonding schemes. In the first form, now called ‘Full Cost Bonding’ (FCB),

‘…the amount of the bond required shall be …the total estimated cost to the Commonwealth of completing the approved reclamation plan.’ (SMCRA, Sec 4.2 (L)(b), Addendum A)

In the second bonding scheme the amount of the bond is an amount established for an ‘Alternate Bonding Program’. This alternate program must achieve the objectives and purpose of SMCRA.

Since primacy Pennsylvania has used an alternate bonding system (ABS) for surface mine permits. The details of this program were never compiled into a single, comprehensive policy document. It required a $3,000.00 per acre bond for actual mining areas and another $1,000.00 per acre bond for support activities, such as sediment controls, topsoil storage, ditches, and haul roads. Higher rates were imposed when the maximum depth of overlying rock exceeded certain depths (e.g. when the cover was between 85 feet and 115 feet the rate was $4,000.00 per acre). When reclamation activities were completed these bonds could be released. In addition, there was a statewide bond pool funded, in part, through the collection of a non-refundable, non-releasable per acre fee. In 1981 this ‘reclamation fee’ was set at $50.00 per acre but increased to $100 per acre on August 7, 1993.

On July 30, 1981, before Pennsylvania achieved primacy, the ABS was challenged. The Pennsylvania Federation of Sportsmen’s Clubs, the Sierra Club, Trout Unlimited, the Audubon Society, the Loyal-Sock Watershed Association, among others petitioned Commonwealth Court for a Review in the Nature of a Complaint in Equity and Preliminary Injunction. On April 27, 1988 the suit was settled when the parities entered into a court-approved consent decree. However, October 1, 1991, OSM notified Pennsylvania that it believed the ABS was not as effective as the federal requirement. Pennsylvania has worked with OSM regarding their concerns over the ABS. However, on May 31, 1995, OSM again wrote the Commonwealth about concerns for the ABS. Throughout Full Cost Bonding was recognized as one of the options available to the State. In October 1999 several citizen groups filed suit in Federal District Court against both DEP and OSM. Among other things, the suit alleged the alternate bond program does not meet the objectives and purpose of SMCRA.

In October 1999 Pennsylvania announced its decision to implement a full cost bonding system. The change represents the first major overhaul of the bonding mechanism in 17 years. Personnel from DEP’s Bureaus of District Mining Operations (DMO), Mining and Reclamation (BMR), and Abandoned Mine Reclamation (BAMR) participated in the program’s design. The program was developed using principles from OSM’s ‘Handbook for Calculation of Reclamation Bond Amounts’ and from a 1989 DEP study called ‘Alternate Bonding – Final Report of the BMR Bond Work Group’. The Full Cost Bonding Program will go through DEP’s typical policy development steps including the opportunity for comment from the public and the Mining and Reclamation Advisory Board (MRAB).

 

Table of Contents

Introduction.....6

Applicability/Implementation.....8

Setting Bond Rate Guidelines.....9

Year 2000 Bond Rate Guidelines.....13

Calculating Site Specific Bond Amounts.....17

Bond Calculation Procedures.....17

Operational Area Concept.....18

Bonding Special Features.....20

Water Supply Replacement Bonds.....20

Reporting.....21

Revisions.....22

Bond Adjustments.....22

Bond Release.....23

Monitoring & Compliance.....23

Frequently Asked Questions.....25

Glossary.....30

Bond Calculation Worksheets.....32

(Note: Worksheets for Anthracite, Demolition, and Refuse Disposal are in development)

 

Introduction

After careful consideration DEP has chosen to implement a Full Cost Bonding of Land Reclamation Program for CoalMine Permits. The program covers Bituminous and Anthracite Surface Mine Permits (SMP), Coal Refuse Reprocessing Permits (CRR), Coal Refuse Disposal Permits (CRD), Incidental Coal Extraction Permits (ICE), and CoalMine Activity Permits (CMAP).

For the purposes of the Full Cost Bonding Program (FCB) the term ‘Land Reclamation’ means the activities needed to implement the approved reclamation plan meet the minimum performance standards described in regulation. It includes the demolition of structures associated with coal preparation activities, the sealing of underground mines and boreholes. It can also cover the bonding when the operator chooses to bond, rather than provide proof of insurance coverage, for replacement of water supplies under SMCRA. The term does not include liability for damage from mine subsidence because separate programs cover it.

Pennsylvania’s mining laws (SMCRA and CRDA) provide the basis for the Full Cost Bonding Program. The FCB Program incorporates those and several assumptions:

The Full Cost Bonding Program involves three Bureaus within DEP’s Mineral Resources Management Deputate. The Bureau of Mining and Reclamation (BMR) is responsible for development of regulations and policies for the active mining industry. The Bureau of District Mining Operations (DMO) is responsible for review/approval of individual permit operation and reclamation plans. It is the agency that calculates the bond amount and monitors for compliance. The Bureau of Abandoned Mine Reclamation (BAMR) is responsible to complete forfeited mine sites according to the approved reclamation plan. It bids and contracts the required work.

The foundation of the Full Cost Bonding Program is calculation and posting of the amount of bond needed for the Department to hire a contractor to complete the approved reclamation plan to regulatory standards. The most logical way to calculate bond amounts is to use methodology similar to BAMR’s method for estimating the costs of actual reclamation contracts.

After forfeiture BAMR measures the disturbed area and estimates the cost of the unit operations needed to complete the reclamation plan. Specifications are published, and bids solicited. The contract is awarded to the low bidder.

BAMR maintains a database in its Ebensburg office of unit costs from bids to recent contracts. This is used to calculate unit costs for unanticipated work.

In the Full Cost Bonding Program DMO will predict the maximum disturbed areas using site conditions and the Operation Reclamation Plans from the permit application. Regulatory requirements for plans and minimum performance standards are found in 25 Pa Code Chapters 86 – 90. The total bond is calculated using the unit costs for the various operations necessary to complete the Reclamation Plan.

The Full Cost Bonding Program requires two distinct kinds of calculations. First is the calculation of the cost per unit operation. These are called the Bond Rate Guidelines (BRG). Second is the application of the BRG to the dimensions of the operational area to arrive at the bond amount for a specific mining permit.

Applicability/Implementation

After the effective date, Full Cost Bonding for Land Reclamation applies to the permits listed in the introduction. This includes revisions to add mining acres to existing permits. Previously bonded permits will need to upgrade to full cost bonds.

A fair, common sense approach to upgrading existing sites is critically important. Operators of operating mines have made decisions based, in part, on the alternate bonding system. They must be given time and cooperation to adjust to full cost bonding.

Holders of existing permits will receive written notification of their obligation to post Full Cost Bonds as soon as possible after the effective date of the program. Active sites or sites under an approved temporarily cessation (as defined under 25 PA Code 87.157, 88.131, 88.332, 89.68, and 90.167) will have until the next mid-term review or permit renewal to adjust their bonds. Except if that mid-term or renewal falls within one calendar year of the effective date of this program. In those cases the operator will have until the end of that calendar year period to adjust their bonds. Thus, the minimum adjustment period is one year and the maximum is 2 years.

During the period between the notification and the date a given site has to adjust to full cost bonds, the operator can consult with the appropriate District Office regarding the amount of bond or potential revisions to the approved Operation and Reclamation Plans. Where the Full Cost Bond is significantly higher than the existing bond the operator may negotiate a Consent Order and Agreement that provides a schedule for both reduction of the existing reclamation liability and for posting of the additional bond.

Operators of existing sites need not wait until the above dates to adjust their bonds. If the existing bond is greater than the Full Cost Bond the Department shall adjust the amount downward. This adjustment of bond is not a bond release and is not subject to the regulatory requirements for bond release.

Permits previously issued but not started must adjust their bonds prior to activation. DMO will evaluate regraded, reclaimed, sites renewed for ‘Reclamation Only’ , and sites with completed coal removal for bond adjustment.

Setting Rate Guidelines

The Department of Environmental Protection shall set the Bond Rate Guidelines using unit costs provided by BAMR. The actual BRG is the three year average of the three lowest bids from all contracts awarded in the period. The units for each operation shall be the same as the units used by BAMR (For example, the unit for ‘grading’ is $/cubic yard). In the event that a given unit operation is not adequately represented in the preceding three years then any additional cost information available from BAMR will be used. If enough data is still not available the rate will be set from a Standard Reference Like ‘Means Building Construction Cost Data’. The Bond Rate Guidelines will be published annually in the Pa Bulletin.

Sample Pennsylvania Bulletin Notice of Annual Bond Rate Guidelines

Notice of Bonding Procedures and Bond Rate Guidelines for the Calculation of Land Reclamation Bonds on Coal Mining Operations in Pennsylvania.

The Department of Environmental Protection, Bureaus of Mining and Reclamation and District Mining Operations propose to modify their existing bond calculation procedures and bond amounts for all coal-mining operations, including both Anthracite and Bituminous facilities. The authority for this modification is found under the Clean Streams Law, act of 1937 (P.L. 1987, No. 394), the Surface Mining Conservation and Reclamation Act, act of 1945 (P.L. 1198, No. 418) and the regulations promulgated thereunder at 25 Pa. Code Chapter 86, Subchapter F. The following specifications and amounts will be used in calculating the land reclamation bonds for all types of coal mining operations including, but not limited to, surface mines, refuse disposal sites, refuse reprocessing sites, preparation facilities and the surface facilities of underground mining operations.

Bond Calculation

The operator provides the volumes, area, and other measures of the unit operations as described in DEP’s Full Cost Bonding for Land Reclamation on Pennsylvania’s Coal Mine Sites. The Department of Environmental Protection calculates the bond amount by applying the Bond Rate Guidelines (BRG) to the unit measures.

The total site bond is the sum of the costs for the component unit operations. The formula for calculating the bond amount is:

Total Site Bond = Direct Costs + Indirect Costs

Direct Costs (DC) are equal to the sum all the different unit operations (UO) times the appropriate bond rate guideline (BRG).

Algebraically this is:

Imagea.gif (1483 bytes)

Indirect Costs (IC) are equal to a percentage of the direct costs. There are two kinds of indirect costs – Mobilization/Demobilization (MC) and Installation or Upgrade of Erosion & Sediment Controls (ESC). Mobilization is a necessary cost for all sites. ESC are calculated only when the reclamation plan calls for temporary structures constructed after backfilling and grading.

For a complete listing of the bonding guidelines and supporting documentation, contact the Bureau of Mining and Reclamation, Division of Monitoring and Compliance, P.O. Box 8461, Harrisburg, PA 17105-8461, 717-787-7846 or on the Web at http://www.dep.state.pa.us/dep/deputate/minres/BMR/BMRhome.htm

Year _____ Bond Rate Guidelines

Unit Operation

Bond Rate

Term

Mobilization/Demobilization

%

Job
Dewatering1

$

Million gallons (mg)
Grading – Select

$

Acre (ac)
Grading – < 500’ push

$

Cubic yard (cy)
Grading -- >500’ push

$

Cubic yard (cy)
Erosion & Sedimentation Controls (Installation or Upgrade)

%

Job
Ditch Excavation

$

Cubic yard
Lining – R32

$

Square yard (sy)
Lining – R42

$

Square yard
Lining – R52

$

Square Yard
Jute Matting

$

Square yard
High Velocity Erosion Control Mulch Blanket (HVECMB)

$

Square yard
PVC Lining 3

$

Square yard
Filter Fabric

$

Square yard
Subsurface Drain

$

Lineal Foot (lf)
Revegetation 4

$

Acre
Seed Bed Preparation

$

Acre
Agricultural Lime

$

Tons/acre
Fertilizer 5

$

Pounds/acre
Nitrogen

$

Pound (lb)
Phosphate

$

Pound
Potassium (Potash)

$

Pound
Seed Type 1 6

$

Pound
Seed Type 2 6

$

Pound
Mulch 7

$

Acre
Trees

$

Stem

Table derived from database provided by BAMR or from average cost estimates provided by BAMR engineers. Average costs calculated from the low three bids on each individual contract for the period from October 1996 to April 1999.

1-Includes costs to treat to effluent criteria.

2-Rock lining with filter material.

3-Typically lining of ponds or ditches crossing fill material.

4-Includes seed bed preparation, lime, fertilizer, seed & mulch. This BRG used on sites that conserve and replace existing soils.

5-Used when bid at bulk rates. Nitrogen, Phosphate, Potassium used when bid using soil test results.

6-Seed Type 1 does not include Crown Vetch. Seed Type 2, used on steep slope areas, includes Crown Vetch. Both used at application rate of 50 pounds per acre.

7-Three ton per acre application rate.

Year 2000 Bond Rate Guidelines

Year 2000 BRG are established in the table below. They were developed using a database from BAMR’s Ebensburg Office. Projects handled from that office include reclamation of pre-primacy bituminous abandoned minelands. Some of the work involves small projects. These are either contracted out or are handled by an in-house work unit. The database is maintained to establish pricing for unanticipated work on contracted sites.

Most of the Year 2000 BRG were derived from the database using the averaging method described above. The unit costs were shared with BAMR engineers who contract for primacy site reclamation. Not all unit operations included in the database are included in the table. This is the result of the different purpose for which the database is maintained. An example is the ‘Clearing & Grubbing’ unit operation. Other operations were ‘lumped’ together to streamline the BRG.

Three BRG deserve special explanation. The first two are the BRG for grading by the cubic yard. Typically, grading costs are estimated with, among other items, factors for equipment type and distance. Permit applications list the mining equipment. But, in the event that the Commonwealth does the reclamation, the contractor provides the equipment (See ‘Frequently Asked Questions’ for additional discussion). The maximum distance from pit to spoil dump is readily determined by direct measurement from the ‘Operations Map’.

Two BRG for grading by the cubic yard are established. The lower cost per cubic yard presumes the spoil is pushed to the excavation. An additional ‘loading’ or ‘hauling’ step is assumed for the higher cost. The break point is 500 feet. This roughly the maximum distance for pushing spoils with a large dozer.

The costs for the two BRG were established through a frequency analysis of the BAMR grading by the cubic yard figures.

FCBRep1.jpg (39501 bytes)

Analysis shows a high number of bids at $0.50 per cubic yard. This is the BRG for the less than 500-foot distance between the excavation and the spoil dump. A second high frequency occurs at $0.80 per cubic yard and is the BRG for the greater than 500 foot distance. A third peak occurs at roughly $1.10 and a fourth at approximately $1.40. These are rejected for BRG’s because they are primarily the result of bids on a single contract.

The cost per stem for reforestation is the other BRG to explain. The average costs for tree planting from the database was $0.88 per stem. This was questioned. Further inquiry with BAMR revealed that most primacy site reforestation is done under an agreement with Pennsylvania’s Department of Conservation and Natural Resources’ Bureau of Forestry. It is not usually bid. Therefore pricing information was sought from Penn Nursery. Accordingly, the BRG for reforestation was changed.

Year 2000 Bond Rate Guidelines

Unit Operation

Bond Rate

Term

Mobilization/Demobilization

3-5%

Job
Dewatering1

$1,000

Million gallons (mg)
Grading – Select

$1,200

Acre (ac)
Grading – < 500’ push

$.50

Cubic yard (cy)
Grading -- >500’ push

$.08

Cubic yard
Erosion & Sedimentation Controls (Installation or Upgrade)

%5

Job
Ditch Excavation

$4.00

Cubic yard
Lining – R32

$17.00

Square yard (sy)
Lining – R42

$20.00

Square yard
Lining – R52

$30.00

Square Yard
Jute Matting

$3.00

Square yard
High Velocity Erosion Control Mulch Blanket (HVECMB)

$3.00

Square yard
PVC Lining 3

$10.00

Square yard
Filter Fabric

$.70

Square yard
Subsurface Drain

$12.00

Lineal Foot (lf)
Revegetation 4

$1,000

Acre
Seed Bed Preparation

$125

Acre
Agricultural Lime

$30.00

Tons/acre
Fertilizer 5

$200

Pounds/acre
Nitrogen

$.55

Pound (lb)
Phosphate

$.35

Pound
Potassium (Potash)

$.30

Pound
Seed Type 1 6

$3.00

Pound
Seed Type 2 6

$6.90

Pound
Mulch 7

$300

Acre
Trees

$.15

Stem

Table derived from database provided by BAMR or from average cost estimates provided by BAMR engineers. Average costs calculated from the low three bids on each individual contract for the period from October 1996 to April 1999.

1-Includes costs to treat to effluent criteria.

2-Rock lining with filter material.

3-Typically lining of ponds or ditches crossing fill material.

4-Includes seed bed preparation, lime, fertilizer, seed & mulch. This BRG used on sites that conserve and replace existing soils.

5-Used when bid at bulk rates. Nitrogen, Phosphate, Potassium used when bid using soil test results.

6-Seed Type 1 does not include Crown Vetch. Seed Type 2, used on steep slope areas, includes Crown Vetch. Both used at application rate of 50 pounds per acre.

7-Three (3) ton per acre application rate.

Calculating Site Specific Bond Amounts

General

Terms and conditions of bonds are unchanged by the implementation of the Full Cost Bonding for Land Reclamation Program.

The minimum amount of bond remains $10,000.00 for Bituminous Mines and $5,000.00 for Anthracite Mines.

Procedures for bond release are unchanged by the implementation of the Full Cost Bonding for Land Reclamation Program (See below).

Bond Calculation Procedures

Calculation of the site-specific full cost bond has at its heart the philosophy that how to mine the site is the operator’s decision. It is a prediction of the maximum possible liability on the site during the permit term. The operator identifies the volumes, area, and other measures of the unit operations in the operation and reclamation plans. DMO calculates the bond amount by applying the Bond Rate Guidelines (BRG) to the unit measures.

The total site bond is the sum of the costs for the component unit operations.

The formula for calculating the bond amount is:

Total Site Bond = Direct Costs + Indirect Costs

Direct Costs (DC) are equal to the sum all the different unit operations (UO) times the appropriate bond rate guideline (BRG).

Algebraically this is:

Imageb.gif (1483 bytes)

Indirect Costs (IC) are equal to a percentage of the direct costs. There are two kinds of indirect costs – Mobilization/Demobilization (MC) and Installation or Upgrade of Erosion & Sediment Controls (ESC). Mobilization is a necessary cost for all sites. ESC are calculated only when the reclamation plan calls for temporary structures constructed after backfilling and grading. The percentage for calculating the IC is included in the published Bond Rate Guidelines.

DMO’s reviewer provides the applicant with a Bond Calculation Worksheet (see example) with the first correction letter. Separate Bond Calculation Worksheets are available for different classes of permit (e.g. SMP’s, CRD’s, etc).

The applicant shall complete the Bond Calculation Worksheet and return it to the reviewer.

Part of the reviewer’s job is to make sure the operation and reclamation plan in the application can be feasibly accomplished (25 PA Code 86.37(a)(2)). The reviewer shall compare the information on the worksheet with the other plans and data in the application modules. If the data on the Bond Calculation Worksheet conflicts with the application data or other information available to the Department the reviewer will discuss the discrepancy with the operator. If unresolved then the reviewer may apply the factors or dimensions they consider appropriate and request bond. If not resolved then DMO could deny the permit. This provides the applicant with the right to appeal to the Environmental Hearing Board (EHB).

In the event that an applicant declines to specify a volume and/or acreage as described above the Department may assume a regulatory maximum. For instance, if the applicant refuses to specify a pit size the reviewer shall calculate the bond based upon the regulatory maximum of 1500 feet by 300 feet for the highest overburden on the permit.

Operational Area Concept

The Full Cost Bonding Program incorporates the Operational Area Concept. This is not a new concept. An internal work group evaluated it in the late 1980’s and issued the ‘Alternative Bonding: Final Report of the BMR Bond Work Group’ on April 28, 1989. Although never adopted the report urged adoption of a bonding system that

‘…Involves bonding a pit or mineral extraction area at one rate and the remainder of the area at another rate…(w)ith this system the location of the pit area is relatively unimportant provided it remains on bonded operations area.’

The Full Cost Bonding system also diminishes the importance of delineating the exact area on the permit where mining activities are occurring at a given point in time. Using this approach the operator delineates the mining area on the Application Exhibit ‘Operations Map’. The characteristics (for instance, the depth of cover, post-mining landuse, etc.) of the operational area are used to calculate the bond. Once an operator has posted the appropriate bond for a given volume of spoil and a certain disturbed area then those activities can move throughout the approved mining area. This is the operational area. It is important that the advance of the mining is synchronized with the progress of land reclamation.

Phased mining on permits is allowed. To phase an operation, the operator shows the phases on the Exhibit 9 ‘Operations Map’. The bond for the initial phase is calculated based upon the conditions within that phase only. But, consequently, the operational area can move only through that phase. Activating additional phases requires a recalculation of the bond.

Using the operational area concept eliminates the need for successive Authorizations To Mine (ATM; also called ‘Bond Increments) and Bond Releases/Rollovers. (See below for additional discussion of release of Full Cost Bonding.)

Because the operations do progress, and because the Operations and Reclamation plans must be feasibly accomplished, no barrier areas can be included in the mining area. Likewise, no mining activities can be included in barriers. An operator could anticipate securing releases, waivers, or variances by including separate plans within the application. The approved plans would have all activities outside barriers. Removing barriers is done through approval of revisions to the mining area and plans.

On larger sites support facilities also progress along with the operational areas. For instance a large mines E & S control plan may call for multiple sediment ponds. However, because of the size of the operation, not all will ever be in place at any one time. In this scenario, the operator need only post the bond to cover the removal and reclamation of the maximum number ponds in place at any time.

Bonding Special Features

In an earlier section several assumptions controlling the program were delineated. One is that the amount of bond is the amount needed to complete the approved reclamation plan. Under Full Cost Bonding some facilities do not need bonded. For instance, if the application includes releases to allow ponds or haulroads to remain as part of the post mining landuse, then no bond is needed for their reclamation. Several scenarios are possible which can eliminate the need to bond certain activities:

The activity is completed prior to mining. For example the permanent relocation of utility lines; or the construction of mitigation wetlands prior to disturbing the existing wetland.

The activity is bonded by other agencies. An example would be the mining out and reconstruction of a public road. If the agency with control of the road requires a bond for the road then duplication of bonding by DEP is unnecessary.

Full Cost Bonding requires bond for several kinds of activities heretofore not bonded. Bonds to complete stream, public road, and utility relocations may be required. Likewise the cost to the Commonwealth to complete wetland mitigation or removal/demolition of structures like electric substations needs considered in determination of the bond amount.

Water Supply Replacement Bonds

Section 3.1(c) of SMCRA requires mine operators to provide insurance to cover damage to public and private water supplies. This requirement applies only to surface coal mines and the surface facilities of underground mines. It is not applicable to damage from underground mine workings or mine subsidence. A mine operator may use insurance coverage or a water supply replacement assurance bond to provide financial assurance that water supplies affected by surface mining activities can be replaced.

Technical Guidance Document (TGD) 562-2500-702 Insurance Requirements and Water Supply Replacement Assurance describes the policy and procedures for implementing this requirement.

For cases where the operator chooses to post bond for the water supply replacement the Full Cost Bonding Program will require modification to the TGD. The calculation of the bond will have to consider the number of water supplies threatened and the individual costs for replacing them. This is a departure from the current flat rate bonding of $3,500.00 per site. From the effective date of this program Full Cost Bonding is required. The operator shall supply estimates from local drillers or public water suppliers. The average of these will become the bond amount for water supply replacement.

The other sections of the policy and guidance remain in effect.

Reporting & Recalculation of Bond Amounts

On each yearly anniversary of permit issuance (or re-issuance), and continuing until the entire site meets stage II land reclamation standards, the operator shall submit verification of bond amount adequacy. Verification shall be a permit exhibit ‘Operations Map’ prepared and sealed by either a Professional Engineer (PE) or a Registered Land Surveyor (RLS). The operator shall include a current bond calculation worksheet and a calculation of existing liability. Owners of lands fully or partly reclaimed in the preceding year will get a written notification from the operator. It will inform them of the reclamation and explain how to contact the appropriate DMO office with questions or comments.

In addition to the application module’s information requirements the map will show the following:

The mining area,

The current location and dimensions of the operational area,

And reclaimed areas.

If the current bond amount is less than the existing liability the operator shall cease overburden and coal removal or refuse disposal until additional bond is posted and approved or until a follow-up survey demonstrates the reclamation liability is less than or equal to the bond amount.

Rather than including inflation in the bond amount calculation DMO will regularly evaluate the cost of reclamation. At each midterm review of Surface Mine Permits DEP shall compare the current Bond Rate Guidelines to the Bond Rate Guidelines at the time of issuance. The Bond Amount will be adjusted if there is a greater than 15% increase in the rates or if the outstanding reclamation liability is greater than the bond amount.

If the operator chooses to renew a permit for additional mining the bond amount will be recalculated. If needed, additional bond is required prior to renewal. (Note: this provision includes renewal at three years for not started permits.)

Revisions

Revisions to the permit that affect the operation or reclamation plans can require a recalculation of the bond amount. Except for boreholes associated with CMAP’s and CRD’s, the additional bond, if needed, shall be posted and approved prior to approval of the revision.

Bond Adjustments

Bonds can be adjusted up or down. Bond amount adjustments involving land no longer proposed for disturbance or revising the cost estimate for land reclamation are not considered bond releases subject to the provisions of 25 Pa Code Chapter 86.170-175.

Some reasons for adjusting bond amounts are:

Moving onto a new phase of mining or adding area to the unreclaimed area. These are adjustments to the operational area.

Barrier reductions.

Revisions to the approved operation or reclamation plan such as:

Leaving a road, pond, or other structure as part of the post-mining landuse.

Moving into higher or lower cover.

Changing the post mining landuse.

Bond Release

25 Pa Code 86.175 (b) spells out the schedule for bond release. The amount of bonds on a permit area or designated phase of a permit area that may be released is calculated as follows:

Release of an amount not to exceed 60% of the total bond amount on the permit area or designated phase of a permit area upon completion and approval by the Department of Stage 1 reclamation.

Under the Full Cost Bonding Program bond release will begin with an adjustment of the bond down to the appropriate amount for the final pit and the other site conditions. This becomes the total amount of the bond from which the 60% is calculated.

Release of an additional amount of bond upon completion and approval by the Department of Stage 2 reclamation. But retaining an amount of bond coverage sufficient to cover the cost of reestablishing vegetation and reconstructing drainage structures if completed by a third party.

After Stage II the actual cost to the Commonwealth to hire a contractor to complete the reclamation plan should be nil (with the possible exception of the cost to remove Erosion and Sediment Controls). One of the basic assumptions discussed above no longer applies. There is no cost to the Commonwealth to complete the reclamation plan. But, bond is still required for the period of liability.

Since 1982 no total failures of revegetation on re-topsoiled sites have occurred. Occasionally an operator needs to return to the site for minor repairs. Typical seeding costs are from $400 - $600 per acre planted. Therefore, retaining $500 per each affected acre is adequate.

Release of the remaining portion of the total bond on the permit area or designated phase of a permit area after standards of Stage 3 reclamation have been attained.

Monitoring and Compliance

Given both the method of bond calculation and the operational area concept it is imperative that the reclamation activities on a site maintain the same pace as the mining. Effective monitoring of an operation requires the Mine Conservation Inspector (MCI) to compare the dimensions used to calculate the bond with the dimensions found on the site. The MCI should have the appropriate equipment and training to make these measurements.

If the MCI believes the dimensions exceed the permitted dimensions he/she has two options. Either ask the Mine Conservation Inspector Supervisor (MCIS) to bring a Global Position System unit on the site for more precise measurement. Or require the operator to verify the dimensions of the operational area in question.

In cases where the amount of bond exceeds the existing liability the MCI needs to find out if the situation is temporary or permanent. In this context temporary means less than 3 consecutive pits, less than one month in duration, and not occurring more than twice in any calendar year. A temporary exceedence is merely noted in the inspection report.

If the operational area dimensions permanently exceed the permitted dimensions but the amount of bond exceeds the liability operator is given a Notice of Violation for permit conditions. The operator’s remedial action is to either reclaim back to the permitted dimensions or submit a revised bond calculation worksheet.

In cases where the liability exceeds the bond the operator is given a compliance order for violating permit conditions. Severely exceeding the dimensions is ground for cessation of additional overburden/coal removal, or coal refuse disposal until either additional bond is posted or reclamation has reduced the liability.

 

Frequently Asked Questions

Because Pennsylvania’s mining laws, it’s regulations, and the primacy program approved by OSM included the option of Full Cost Bonding the program has followed, to this point, an atypical path. That is not to say there has not been plenty of interest in the program. Quite the contrary, there have been many questions poised by industry groups, individual operators, consultants, citizens, staff and management. From this point the Full Cost Bonding Program will go through DEP’s policy development process including the opportunity for comment from the public and the MRAB.

Their questions and comments were helpful in resolving many difficulties that arose along the way. In some instances, their solutions are incorporated into this document. Responding to these questions allowed consideration of problems from a different perspective.

This section is not included in lieu of a Comment/Response document. It is intended to provide answers to some recurring questions.

 

Question – Why not design the program so the operator posts a given amount of bond without detailing an operations area? This is the simplest way to full cost bond and it gives the operator maximum flexibility to adapt to changes in site or market conditions. The MCI would verify, during the monthly inspection, that the bond amount exceeds the liabilities.

Answer –DMO has the legal responsibility of determining the amount of the bond ‘…based upon the total estimated cost to the Commonwealth of completing the approved reclamation plan…’(SMCRA Sec.4.2). The law requires an estimation of the costs for completing the site. To do that requires the ability to predict the maximum liabilities that could occur during the permit term. Only through having the operator specify the dimensions of the operations area is that prediction made. This process may be more complicated than keeping the liability less than the posted bond, but it is necessary to comply with SMCRA.

This question raised several issues about the operator’s ability to meet changing conditions. Coal seams are parts of natural, geologic systems and are neither regular nor uniform. Coal quality and thickness can change rapidly. Likewise, there are daily market changes to quality specifications and pricing. Industry needs the ability to quickly modify their plans to meet changes in site or market conditions.

DMO allows this flexibility through its monitoring and compliance activities. The FCB program acknowledges situations may arise where the operational area exceeds its permitted dimensions (but is within the mining area approved in the permit) without having liability exceed the posted bond. If the situation is temporary then it is merely mentioned in the MCI’s inspection report. If permanent, then the operator needs to provide an updated bond calculation worksheet.

 

Question – Why not bond company’s rather than sites? The company would post a statewide bond and make sure it keeps liabilities on all it’s sites less than the bond amount.

Answer –SMCRA requires ‘…a bond for the land affected by each operation…’ A later section of SMCRA provides for self-bonding by the permittee. Apparently, the self-bonding requirements are stringent. Few if any, of Pennsylvania’s mine operators can self-bond. This is an issue outside the scope of the Full Cost Bonding Program.

 

Question – Increases in costs can lead to bankruptcy, fewer operators, less mines, and, ironically, more forfeitures. Isn’t DEP, through Full Cost Bonding, destroying the industry?

Answer – In some cases Full Cost Bonding will cause operators to post more bonds than under the current system. In other cases, it will not. Operator’s using surety bonds will see a corresponding increase in premiums. Those are the only direct increases in costs.

Full Cost Bonding will require additional engineering. The dimensions of the operational area need defined, the worksheet and annual maps completed. Overall these costs are balanced by no longer needing multiple ‘Bond Increments’ or ‘Completion Reports’.

Some operators cannot secure additional surety bonds. They have reached their ‘limit’. Thus increasing the amount of bonds posted by those operators becomes a critical issue. This is acknowledged in the implementation of the FCB program. Time is allowed to adjust to the new bonding program. The Commonwealth is working with the surety industry to address the problem (See the program for details of implementation on existing sites.)

 

QuestionHow does the Full Cost Bonding Program handle having different size pits on the same site, or pits that are irregularly shaped?

Answer – The operator specifies the maximum dimensions of any pit on the site during the term of the permit. Multiple pits require a calculation of bond for each pit. Calculation of the dimensions can be done using any method from simple geometry to sophisticated computer software.

 

QuestionWhat impact will Full Cost Bonding have on Financial Guarantees or Bond Credits? Does it include remining incentives?

Answer – Full Cost Bonding will not affect either the Financial Guarantee or Bond Credit Programs. They are separate and distinct programs. Like the alternate bonding system before it, Full Cost Bonding does not include remining incentives.

 

Question – The Full Cost Bonding Program provides another place for permit reviewers to ‘nit-pick’ the operator’s plans. How will differences between the operator and the reviewer be prevented?

Answer – The operator decides how to mine a site. The reviewer’s job is to make sure the operation and reclamation plan can be feasibly accomplished. It is not DMO’s responsibility to demand other options. The reviewer looks at how the application represents and handles existing conditions, plus it’s internal consistency. This does not change. Nor do the time framework established for permit review. Prevention of nit picking requires effective communication. The reviewer should recognize it is the operator’s decision how to mine a site and the operators and their consultant should recognize their plans must feasible to accomplish in the field.

 

QuestionWhy use BAMR’s costs for reclamation of forfeited sites? Can there be relief from the requirement for prevailing wage rates?

Answer – The legal requirement for the bonding mechanism is that it provides the funds the Commonwealth needs to hire a contractor to complete the reclamation plan. More than half of the bids on BAMR contracts come from licensed mine operators. Using the bid amounts accurately reflects what industry believes are reasonable rates for the unit operations given the constraints placed on Commonwealth contracts. One of those constraints using prevailing wage rates. It is derived from state law. Short of changing the law, there is no relief from the prevailing wage requirement on BAMR contracts.

 

Question – Some sites are mined using equipment capable of moving spoil a rates much less than the Bond Rate Guideline. Is it possible to use a lower rate if the operator’s equipment is available for reclamation?

Answer – The Full Cost Bonding Program is designed to provide flexibility to deal with atypical situations. Provided proper binding legal agreements are reached between all the equipment’s owners and lien holders, the operator, and the Commonwealth for the maintenance, upkeep, and availability of the machines, then a lower rate is possible. The responsibility for negotiating those agreements falls to the operator and should be made prior to applying for the mining permit.

 

QuestionAren’t the tree planting costs high?

Answer – The average costs for tree planting from the database was $0.88 per stem. This was questioned. Further inquiry with BAMR revealed that most primacy site reforestation is done under an agreement with the Department of Conservation and Natural Resources’ Bureau of Forestry. It is not usually bid. Therefore pricing information was sought from a private nursery. The BRG for reforestation was changed accordingly.

 

QuestionWhat is the period used to predict liability and calculate the bond?

Answer – The term of the permit.

 

QuestionHow will Full Cost Bonds be released? Are bond adjustments allowed?

Answer – Full Cost Bonds will be released using current bond release procedures. However, because of the operational area concept, completion reports won’t be filed until the end of the operation. Therefore, the operator concurrent with submittal of the verification map will notify owners of property affected in the preceding year. The notification provides the opportunity to contact DMO with questions and concerns.

Bond adjustments are allowed for dropping areas no longer planned for mining and when changes to the operations or reclamation plans reduce costs.

 

Glossary

ABS – Acronym for ‘Alternate Bonding System’.

ATM – Acronym for ‘Authorization to Mine’. It is the approval required to affect a specific parcel of land within a Surface Mine Permit.

BAMR – Acronym for ‘Bureau of Abandoned Mine Reclamation’. This agency of the Commonwealth’s Department of Environmental Protection bids and contracts the reclamation of abandoned minelands and forfeited mine sites.

BMR – Acronym for ‘Bureau of Mining and Reclamation’. This agency of the Commonwealth’s Department of Environmental Protection develops regulation and policy for active mining within the state.

Bond Rate Guidelines (BRG) – The costs of a given unit operation. The BRG is arithmetically combined with the dimension of the unit operation to calculate that portion of the mine site’s total bond.

CMAP – Acronym for ‘Coal Mining Activity Permit’. This class of permit allows for the development and operation of underground coal mines and preparation plant facilities. Only the surface facilities of underground coal mines are bonded using this program.

CRD – Acronym for ‘Coal Refuse Disposal Permit’. This class of permit allows for the construction of coal refuse disposal sites for active underground coal mines or preparation plants.

CRDA – Acronym for ‘Coal Refuse Disposal Control Act’. This is Pennsylvania’s law covering the disposal of coal refuse. (52 P.S. 30.51 – 30.66)

CRR – Acronym for ‘Coal Refuse Reprocessing Permit’. This class of permits allows the re-working of coal refuse disposal piles existing prior to SMCRA.

DEP – Acronym for Pennsylvania’s ‘Department of Environmental Protection’.

DMO – Acronym for ‘Bureau of District Mining Operations’. This agency of the Commonwealth’s Department of Environmental Protection is responsible for regulating the active mining industry. It permits, monitors, and, if necessary, takes the compliance action necessary to implement state law.

Land Reclamation – In the context of the Full Cost Bonding Program, Land Reclamation is the suite of mining activities necessary to implement the approved reclamation plan. It includes the demolition of structures, sealing of boreholes, and bonding for replacement of water supplies covered by SMCRA. It does not include liability for damage (including loss, diminution, or degradation of water supplies) from mine subsidence.

Mining Area – In the context of the Full Cost Bonding Program, this is the portion of the permit on which the operational area may move. It is identical to the area covered by the Authorization to Mine.

Operational Area – In the context of the Full Cost Bonding Program, this is the amount of area on which mining and reclamation activities take place. The operator specifies the size of the operational area.

OSM – Acronym for the United States Department of the Interior’s ‘Office of Surface Mining, Reclamation and Enforcement’. It is the federal agency designated to implement the provisions of the Federal Surface Mining Control and Reclamation Act of 1977.

Primacy – The status granted from OSM to individual states who’s coal mining regulatory programs are at least as effective as the federal equivalent.

SMCRA – Acronym for ‘Surface Mining Conservation and Reclamation Act’. This is Pennsylvania’s law covering the surface disturbances caused by all kinds of coal mines. It covers both Anthracite and Bituminous mines. (P.S. 52 1396.1 – 1396.31)

SMP – Acronym for ‘Surface Mine Permit’. This class of permits allows the surface mining of coal.

Temporary Exceedance – In the context of the Full Cost Bonding Program, these are situations where the actual mining activities exceed the operational area dimensions. It is temporary if it happens in less than 3 consecutive pits, is less than one month in duration, and does not occur more than twice in any calendar year.

Unit Operation – In the context of the Full Cost Bonding Program, these are the individual and specific activities that make up Land Reclamation. Examples of unit operations are grading, topsoil replacement, planting, etc.

______________________________________________________________________________________________________________________

Bond Calculation Worksheet

(Instructions in green)
(Review guide in red)

Grading Costs

Backfilling

Pit Length      ft  X  Width    ft   X    Depth    ft  / 27  = cy    X     $   /  cy   =   $
Use higher rate if spoil > than 500 ft from any pit. Confirm distance to spoil dump(s).
Can exclude Coal and other product minerals. Are pit dimensions compatible with equipment list?
Use separate calculations for additional pits.

If using other methods to determine volumes, attach calculations.

Use drill hole data to confirm mineral volume ( only if excluded from total)

 

Topsoil Handling

(Acres needing topsoil/43560 ft2/acre)    X   Soil Thickness   ft /
                                 27 ft3/cy                                      =     
cy X $ /cy = $
Include all soil horizons. Verify volumes by checking calculations and soil survey information.
Amount is total of the maximum area where topsoil needs spread during permit term. Maximum area may occur during winter months when re-distribution isn’t possible.
Use higher rate if stockpiles are > than 500 ft from any pit.

_______________________________________________________________________________________________________________________________________

Revegetation Costs

Seeding (Option 1)

Area needing Seeded       acres   X   $   /  acre    = $
Area is maximum area needing planted at any given time during the permit term. Compare area to topsoil placement calculations
Assumes 3-tons/acre lime, 400-lbs./acre 10-10-10 fertilizer, 50-lbs./acre grass and legume seed mix, and 3-tons/acre mulch application. Can require a specific breakdown if plans in application are significantly different.
Use Option 1 only when seeding soil materials

Seeding (Option 2)

Seed Bad Preparation Area    acres   X  $     /acre    = $
Lime Area     acres   X     tons/acre   X   $    /ton    = $
Fertilizer Area     acres   X    lb/acre  X   $    /lb   = $
Seed Area     acres   X   lb/acre    X   $    /lb   =  $
Mulch Area    acres   X      tons/acre   X   $    /ton    = $
                                   Total =   $
Area is maximum area needing planted at any given time during the permit term. Compare area to topsoil placement calculations.
Application rates based upon root zone material testing. Verify sampling plan appropriate for site and samples properly composited.
Can breakdown fertilizer costs by N, P, K if needed. Attach as separate sheet.
Use Option 2 when seeding non-soil materials.

Reforestation

Area To Plant      acres  X     stems/acre   X   $      /stem  = $

_______________________________________________________________________________________________________________________________________

Facilities Removal

Erosion & Sediment Controls

Number of Ponds        X  $3,500/pond   =  $
Rate includes removal of associated ditches.
Do not include ponds which are part of the post-mining land use and for which the landowner has signed a release.

Roads, Pads, Stockpile, and Storage Areas

Length of Roads       ft  X  Width     ft /43560 ft2 /acre    X
$   / acre =
$
Area Of Other Facilities        acres  X  $     / acre = $
Be sure to include road acreage in topsoil and revegetation calculations.
Use ‘’Selective Grading’ rate.

_______________________________________________________________________________________________________________________________________

Other Activities

For required reclamation activities not shown above:

Determine the dimensions of the activity and multiply by the appropriate BRG. Attach calculation sheets.

If no BRG is available attach three independent estimates for performing the task. (Examples: Cost of alkaline addition materials, importation of soil cover material, or replacement of water supplies.)

______________________________________________________________________________________________________________________________________

Subtotal

Backfilling $
Topsoil Handling $
Seeding $
Reforestation $
E & S Removal $
Road, etc. Removal $
Other                             + $________________
                                          Subtotal = $

______________________________________________________________________________________________________________________________________

Mobilization / Demobilization

Subtotal  $       X        %   = $
Rate varies from 3 to 5 % based upon size of site and maximum distance from spoil dump to pit.

______________________________________________________________________________________________________________________________________

Total Bond
   Subtotal $
+ Mobilization / Demobilization $___________________________
                                              Total = $

Attach additional Worksheets and calculation pages as needed.

Contact your Lead Permit Reviewer for assistance in completing this form.

DO NOT submit the bond until the District Mining Office has provided you with a "Bond Submittal" form.

Please note:  this is a DRAFT.

Appendices not posted at this time

Appendix 1

Bonding Programs of Other States

 

Appendix 2

Excerpts from SMCRA and CRDA

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