Pennsylvania Regulatory Program, 48526-48547 [2010-19276]

Agencies

• DEPARTMENT OF THE INTERIOR
• Office of Surface Mining Reclamation and Enforcement
• Surface Mining Reclamation and Enforcement Office

[Federal Register Volume 75, Number 153 (Tuesday, August 10, 2010)]
[Rules and Regulations]
[Pages 48526-48547]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-19276]



[[Page 48525]]

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Part IV





Department of the Interior





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Office of Surface Mining Reclamation and Enforcement



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30 CFR Part 938



Pennsylvania Regulatory Program; Final Rule

Federal Register / Vol. 75, No. 153 / Tuesday, August 10, 2010 / 
Rules and Regulations

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DEPARTMENT OF THE INTERIOR

Office of Surface Mining Reclamation and Enforcement

30 CFR Part 938

[PA-153; Docket ID OSM-2008-0021]


Pennsylvania Regulatory Program

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

ACTION: Final rule; partial approval of amendment.

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SUMMARY: OSM is announcing its partial approval of a program amendment 
submitted by the Commonwealth of Pennsylvania for the purpose of 
addressing the need for financial guarantees to cover the costs of 
treatment of post-mining pollutional discharges and land reclamation 
for those surface coal mining sites that were originally bonded under 
the Commonwealth's now defunct alternative bonding system (ABS). OSM is 
requiring that Pennsylvania ensure that its program provides suitable, 
enforceable funding mechanisms sufficient to guarantee coverage of land 
reclamation at all original ABS sites.

DATES: Effective Date: August 10, 2010.

FOR FURTHER INFORMATION CONTACT: George Rieger, Director, Pittsburgh 
Field Division, Telephone: (717) 782-4036, e-mail: grieger@osmre.gov.


SUPPLEMENTARY INFORMATION:
I. Background on the Pennsylvania Program
II. Description of the Amendment
III. OSM Findings
IV. Summary and Disposition of Comments
V. OSM's Decision
VI. Procedural Determinations

I. Background on the Pennsylvania 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 Pennsylvania program on July 30, 1982.
    You can find additional background information on the Pennsylvania 
program, including the Secretary's findings, the disposition of 
comments, and conditions of approval in the July 30, 1982, Federal 
Register, 47 FR 33050. You can also find later actions concerning 
Pennsylvania's program and program amendments at 30 CFR 938.11, 938.12, 
938.13, 938.15 and 938.16.

General Discussion--Bonding Regulations

    SMCRA's implementing regulations at 30 CFR Part 800 specify the 
minimum requirements for filing and maintaining bonds and insurance for 
surface coal mining and reclamation operations under regulatory 
programs. This Part includes (but is not limited to) a description of 
the regulatory authority's responsibilities and definitions, the 
requirement to file a bond, the form of the performance bond, the 
period of liability, the determination of bond amount and adjustment of 
the amount, and the general terms and conditions of a bond.
    Coal operators are required to file a bond for reclamation of 
disturbed land in accordance with permit requirements. The bond should 
cover the entire permit area and the amount may be determined 
incrementally as reclamation phases are completed. Independent 
increments should be of sufficient size and configuration to provide 
for efficient reclamation operations should reclamation by the 
regulatory authority become necessary. The applicant can file a bond or 
another financial instrument to cover the bond amount.
    These bonding methods include a bond for the entire permit area, a 
cumulative bond schedule and bond for the initial area, an incremental 
bond schedule and bond for the first increment, or an alternative 
bonding system if it achieves the objectives and purposes of the 
bonding program. As set forth at 30 CFR 800.11(e), the objectives of 
the bonding program are: (1) To assure that the regulatory authority 
will have available sufficient money to complete the reclamation plan 
for any areas which may be in default at any time; and, (2) to provide 
a substantial economic incentive for the permittee to comply with all 
reclamation provisions.
    In addition to prescribing, by regulation, the terms and conditions 
for performance bonds, the regulatory authority is also responsible for 
determining the amount of the bond, including any adjustments to such 
amount. The determination of the bond amount should depend upon the 
requirements of the approved permit and reclamation plan and reflect 
the probable difficulty of reclamation. The amount of the bond should 
be sufficient to assure the completion of the reclamation plan if the 
work has to be completed by the regulatory authority.
    The amount of the bond shall be adjusted by the regulatory 
authority from time to time as the area requiring bond coverage is 
increased or decreased or where the cost of future reclamation changes. 
The regulatory authority may require periodic times or set a schedule 
for reevaluating and adjusting the bond amount to fulfill this 
requirement.
    The regulatory authority may release liability under a bond when 
reclamation activities are completed and may require forfeiture of such 
bonds if the terms of the permit or bond are not met. The liability 
period shall extend until all reclamation, restoration, and abatement 
work under the permit has been completed.
    Throughout the U.S., State regulatory programs have employed a 
variety of bonding programs, some electing to employ a conventional 
bonding program (full-cost bonding program that requires site-specific 
bonds as the only means of assuring reclamation following completion of 
mining) and others electing to employ an ABS as provided for in Sec.  
800.11(e).

Background on Pennsylvania's Bonding Program

    For almost 60 years Pennsylvania 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 
ensure the required land reclamation. The current requirements for both 
land reclamation and bonding are found in the Surface Mining 
Conservation and Reclamation Act (PASMCRA) (52 p.s. SS 1396.1-1396.31), 
the Coal Refuse Disposal Control Act (CRDCA) (52, P.S. SS 30.51-30.66) 
and the Clean Streams Law (CSL) (35 p.s. SS 691.1-691.1001). These 
provisions 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'' of PASMCRA, the CSL, and other applicable 
statutes.
    The conventional bonding system is based on the mine operator's 
description of the maximum amount of reclamation needed during the term 
of the permit. The proposed dimensions of the mining activity are 
combined with bond rate guidelines to calculate the total bond. The 
PADEP developed bond rate guidelines using actual bid costs submitted 
for abandoned mine lands and forfeited mine sites reclamation contracts 
and other appropriate sources. Revised guidelines are published in the 
Pennsylvania Bulletin annually.

[[Page 48527]]

    Pennsylvania's mining laws provide the basis for conventional 
bonding. The conventional bonding system incorporates the bonding 
obligations of those acts and the regulations and considers the 
following criteria.
    The bond amount is the cost to the Commonwealth for hiring a 
contractor to complete the permitted reclamation plan to regulatory 
standards. It reflects the Commonwealth's maximum responsibilities 
under the approved operation and reclamation plan for land reclamation.
    The operation and reclamation plans in the coal mining permit 
application describe how the operator will mine and reclaim the site. 
The PADEP relies upon the operator's plan, plus site-specific special 
conditions, when calculating the total bond.
    Permit approval requires a finding that there is no presumptive 
evidence of pollution to the waters of the Commonwealth. Consequently, 
post-mining pollutional discharges of mine drainage are not anticipated 
in the reclamation plan. The calculation of the initial bond amount for 
a coal mining permit does not include costs for the treatment of mine 
drainage or anything not anticipated in the approved permit and 
reclamation plan.
    Many factors contribute to the design of a mine site, and therefore 
effect the rate of bond required for full reclamation. If the methods 
of mining or operation change, standards of reclamation change, or the 
cost of reclamation, restoration or abatement work increases, the PADEP 
will require the permittee to recalculate the bond.
    From 1982 until 2001, Pennsylvania's approved program included 
operation of an ABS for surface coal mines, coal refuse reprocessing 
operations and coal preparation plants. Under the ABS, in the event of 
bond forfeiture, the amount of bond posted by the operator for the 
forfeited site was supplemented by other funds (the Surface Mining 
Conservation and Reclamation Fund, or SMCR Fund). This fund (referred 
to as a bond pool) was funded in part by a per-acre reclamation fee 
paid by operators of permitted sites and was used to supplement site-
specific bonds posted by those operators for each mine site, in the 
event of bond forfeiture.
    In 1991, OSM's oversight activities determined that Pennsylvania's 
ABS included unfunded reclamation liabilities for backfilling, grading, 
and revegetating mined land and OSM determined that the ABS was 
financially incapable of abating or treating unanticipated pollutional 
discharges from bond forfeiture sites under its jurisdiction.
    In May 1991, OSM codified a required regulatory program amendment 
at 30 CFR 938.16(h), directing Pennsylvania to submit information by 
November 1991 which demonstrated that Pennsylvania's ABS was solvent. 
The program amendment required Pennsylvania to submit information 
demonstrating that the revenues generated by the collection of the 
reclamation fee, as amended in 25 Pa. Code 86.17(e) will assure that 
Pennsylvania's ABS can be operated in a manner that will meet the 
requirements of 30 CFR Part 800.11(e). See 56 FR 24687 (May 31, 1991).
    Additionally, in October 1991, OSM notified Pennsylvania that in 
order for Pennsylvania to maintain jurisdiction of the regulatory 
program under the Federal Surface Mining Control and Reclamation Act of 
1977, 30 U.S.C. 1201 et seq. Pennsylvania had to address program 
deficiencies related to administration of the ABS. This document is 
commonly referred to as a ``732 letter,'' because it was issued 
pursuant to the Federal regulations, at 30 CFR 732.17.
    These OSM actions identified a deficiency in the ABS concerning the 
system's ability to generate sufficient funds to complete the 
reclamation of all primacy ABS bond forfeiture sites, including the 
costs to treat pollutional discharges on these sites. Since 1991, 
Pennsylvania had undertaken actions and made changes to its bonding 
program in an effort to address the deficiencies identified. In the 
late 1990s, Pennsylvania concluded the ABS could not be amended to meet 
the Federal requirements, and in 2001, Pennsylvania terminated the ABS 
and converted the active permits covered by the ABS to a ``full-cost'' 
bonding program (conventional bonding program). This program requires a 
permittee to post a site-specific bond in an amount sufficient to cover 
the estimated costs to complete reclamation in the event of bond 
forfeiture.
    Following termination of the ABS, Pennsylvania and OSM developed a 
programmatic solution for addressing all of the discharges on the 
forfeited ABS sites, which was memorialized in a document titled 
``Pennsylvania Bonding System Enhancements.'' By letter dated June 12, 
2003, OSM notified the PADEP that the conversion to a full-cost bonding 
program, as well as other additional measures taken by the State, were 
sufficient to remedy the deficiencies cited in the 732 letter, which it 
declared to be terminated, and agreed with Pennsylvania that the only 
ABS obligation remaining was to expend remaining ABS monies for 
reclamation of forfeited sites.
    On October 7, 2003, OSM published a final rule removing the 
required amendment at 30 CFR 938.16(h) on the basis that the conversion 
from an ABS to a full-cost bonding program rendered the requirement to 
comply with 30 CFR 800.11(e) moot. See 68 FR 57805. Subsequent to these 
OSM actions, a lawsuit was filed in the U.S. District Court for the 
Middle District Court of Pennsylvania by several citizens groups in 
December 2003 challenging OSM's termination of the 1991 Part 732 Notice 
and its removal of the required program amendment in 30 CFR 938.16(h). 
(Pennsylvania Federation of Sportsmen's Clubs Inc. et al. v. Norton, 
No. 1:03-CV-2220). In 2006, the U.S. District Court granted a motion 
requesting dismissal of the case. The district court affirmed OSM's 
decision in a Memorandum Opinion and Order dated February 1, 2006. Id. 
The plaintiffs appealed the District Court's decision to the U.S. Court 
of Appeals for the Third Circuit.

Court Decision

    On August 2, 2007, the United States Court of Appeals for the Third 
Circuit reversed the district court's decision and set aside OSM's 
decision to remove the required amendment and the 732 letter. 
Pennsylvania Federation of Sportsmen's Clubs v. Kempthorne, 497 F.3d 
337 (3rd Cir. 2007) (Kempthorne). At issue, relevant to this notice, 
was whether OSM properly terminated the requirement that Pennsylvania 
demonstrate that its SMCR Fund was in compliance with 30 CFR 800.11(e). 
The ruling by the Third Circuit reinstated 938.16(h) and the 1991 Part 
732 Notice and remanded the decision to OSM.
    The court ruled that the primacy ABS forfeited sites, plus any 
additional sites permitted under the ABS whose reclamation costs are 
not fully covered by a conventional bond, remain subject to the 
requirements of 30 CFR Part 800.11(e)(1). The Third Circuit concluded: 
``While it is true that the `ABS Fund' continues to exist in name, it 
no longer operates as an ABS, that is, as a bond pool, to provide 
liability coverage for new and existing mining sites.'' 497 F.3d at 
349. However, the Court went on to ``conclude that 800.11(e) continues 
to apply to sites forfeited prior to the CBS [conventional bonding 
system] conversion.'' Id. at 353. In commenting further on 30 CFR 
800.11(e), the Court stated that ``[t]he plain language of this 
provision requires that Pennsylvania demonstrate adequate funding for 
mine discharge abatement

[[Page 48528]]

and treatment at all ABS forfeiture sites.'' Id. at 354.
    Finally, the court also concluded that ``a plain reading of the 
words `any areas which may be in default at any time' indicates that 
the obligations prescribed by Sec.  800.11(e) are not restricted to the 
immediate circumstances surrounding the approval of an ABS, but are 
instead ongoing in nature and apply at any time, so long as those 
mining areas originally bonded under the ABS, and not yet converted to 
CBS bonds, still exist.'' Id. at 352. As such, Pennsylvania shall 
provide for the complete reclamation and treatment of these sites and 
their pollutional discharges by assuring Pennsylvania has available 
sufficient money to complete reclamation for these sites at any time.

State Response

    Pennsylvania submitted the program amendment in an attempt to 
satisfy two mandates placed on the State's approved surface coal mining 
operations regulatory program in 1991. The mandates, in the form of a 
required amendment published in the Code of Federal Regulations, and a 
letter from OSM, required Pennsylvania to eliminate funding 
deficiencies in its bonding program.
    Two categories of surface coal mining sites requiring treatment of 
post-mining pollutional discharges and land reclamation are the subject 
of this notice: (1) Those sites that already had their bonds forfeited 
at the time of the dissolution of ABS; and (2) those that were 
permitted and had bonds that were not forfeited at the time of the 
dissolution of the ABS, but had existing reclamation liabilities, for 
which available financial guarantees were not sufficient to cover the 
entire cost of treatment or reclamation during the conversion to the 
Commonwealth's conventional bonding system. These sites, if forfeited, 
would be considered liabilities of the ABS.

II. Submission of the Amendment

    By letter dated August 1, 2008 (Administrative Record Number PA 
802.43), Pennsylvania sent OSM a proposed program amendment that is 
intended to satisfy a required amendment that was imposed by OSM in a 
final rule published in the Federal Register on May 31, 1991, 56 FR 
24687, and codified in the Federal Regulations at 30 CFR 938.16(h). 
This proposed program amendment is also intended to satisfy the 732 
letter dated October 1, 1991. Both the required amendment and the 732 
letter are discussed in more detail in Section I.
    OSM announced receipt of the proposed amendment in the January 14, 
2009, Federal Register (74 FR 2005-2015) (Administrative Record No. PA 
802.49) and in the same document invited public comment and provided an 
opportunity for a public meeting on the adequacy of the proposed 
amendment. The public comment period closed on February 13, 2009. We 
received comments from four entities; The Pennsylvania Coal Association 
comment dated February 11, 2009 (Administrative Record No. PA 802.59); 
PennFuture letter dated February 27, 2009, representing Pennsylvania 
Federation of Sportsmen's Clubs, Inc., the Sierra Club, Pennsylvania 
Council of Trout Unlimited, Citizens for Coal Field Justice, Mountain 
Watershed Association, Inc., and Citizen's for Pennsylvania's Future 
(Administrative Record No. PA 802.60); the United States Environmental 
Protection Agency memorandum dated February 13, 2009 (Administrative 
Record No. PA 802.58); and the Mining and Reclamation Advisory Board 
letter dated February 12, 2009 (Administrative Record No. PA 802.56). 
Two other Federal agencies responded with no comment (U.S. Fish and 
Wildlife Services' note dated January 22, 2009 (Administrative Record 
No. PA 802.52), and the U.S. Department of Labor memorandum received 
February 5, 2009 (Administrative Record No. PA 802.54).
    Treatment of Post-Mining Discharges (Parts A, C & E of the 
Amendment Submission): To address the treatment of post-mining 
discharges, Pennsylvania proposed regulatory provisions; provided a 
demonstration of sufficient funding; and proposed the use of treatment 
trusts.
    Land Reclamation (Parts B & D of the Amendment Submission): To 
address land reclamation liabilities for sites originally permitted 
under the ABS, Pennsylvania submitted a statutory provision and 
demonstration of sufficient funding.
    This program amendment consists of five parts: (A) Regulatory 
Changes to Establish Legally Enforceable Means of Funding the O&M and 
Recapitalization Costs for the ABS Legacy Sites; (B) The Conversion 
Assistance Program; (C) Trust Funds as an Alternative System and Other 
Equivalent Guarantee: Rationale for Approval; (D) Demonstration of 
Sufficient Funding for Outstanding Land Reclamation at Primacy ABS 
Forfeiture Sites; and, (E) Demonstration of Sufficient Funding for 
Construction of all Necessary Discharge Treatment Facilities at the 
Primacy ABS Forfeiture Sites.
    Regulatory Changes (Part A): Pennsylvania explains that the 
regulatory changes submitted with this amendment provide a ``legally 
enforceable mechanism'' for paying the costs of treating the discharges 
at the ABS legacy sites in perpetuity. In summary, these changes 
restructure the reclamation fee and dedicate other sources of funding 
for performing reclamation of the ABS sites. The PADEP recognizes the 
reclamation fee as a flexible source of funding for the operation and 
maintenance costs associated with treating discharges at the ABS legacy 
sites.
    Conversion Assistance Program and Treatment Trusts (Parts B and C): 
The conversion process included several changes to the active bonding 
program. Section 4(d.2) of the PASMCRA, 52 P.S. 1396.4(d.2), authorized 
PADEP to establish alternative financial assurance mechanisms that meet 
the purposes and objectives of the bonding program (i.e., Conversion 
Assistance Program and Treatment Trusts).
    Demonstrations of Sufficient Funding (Parts D and E): Pennsylvania 
submitted documentation to demonstrate that it has available sufficient 
funds to complete the outstanding land reclamation and sufficient funds 
to construct the necessary discharge-treatment facilities for all the 
ABS legacy sites at any time, as required by the Third Circuit's 
decision.
    Pennsylvania explains that the regulatory changes described in Part 
A, along with the remaining portions of this State program amendment, 
described in Parts B through E below, while they do not consist of 
changes to Pennsylvania regulations, are financial mechanisms PADEP has 
established that will work in concert with the regulatory changes 
described above to bring Pennsylvania into compliance with the required 
amendment at 30 CFR 938.16(h), the 1991 732 letter, and, consequently, 
with the ABS standard of sufficiency set forth in 30 CFR 800.11(e). 
Pennsylvania is seeking approval of this program amendment submission 
in its entirety in accordance with 30 CFR 732.17(h) and the Part 732 
Notices.

III. OSM Findings

Part A. Regulatory Changes To Establish Legally Enforceable Means of 
Funding the O&M and Recapitalization Costs for the ABS Legacy Sites

    The following is a description of the changes to Pennsylvania's 
Code that are being proposed:

[[Page 48529]]

Summary of Regulatory Changes--Section 86.1, Definitions
1. Subchapter A. General Provisions, Section 86.1: Definitions
    The terms, ABS legacy sites, operational area, operation and 
maintenance costs, primacy alternate bonding system, and 
recapitalization costs were added to Pennsylvania's list of definitions 
to clarify and define these terms when discussing and addressing sites 
that were permitted under the alternative bonding system.
    Finding: We are approving Pennsylvania's changes to its definitions 
that define the following terms: ABS legacy sites, operational area, 
operation and maintenance costs, primacy alternate bonding system, and 
recapitalization costs. There are no Federal counterparts to these 
definitions; however, they are not inconsistent with SMCRA and its 
implementing regulations.
Summary of Regulatory Changes--Section 86.17, Permit and Reclamation 
Fees
2. Subchapter B. Permits, General Requirements for Permits and Permit 
Applications, Section 86.17 Permit and Reclamation Fees
a. Section 86.17(e) Reclamation Fees:
    This provision revises the text of Section 86.17(e) to clarify the 
application of this subsection in the context of the CBS. The revisions 
provide that the reclamation fee is assessed for each acre of the 
approved operational area of the permit. The proposed revisions also 
clarify the manner in which the reclamation fee is assessed. Finally, 
minor editorial changes were made by adding references to Section 
86.143 (relating to the requirement to file a bond) and to the 
exception for remining areas provided in Section 86.283(c).
b. Section 86.17(e)(1) (deposit and use of reclamation fees)
    This provision, in conjunction with Section 86.187(a)(1), 
establishes a separate subaccount within the SMCR Fund called the 
Reclamation Fee O&M (operation and maintenance) Trust Account (RFO&M 
Account), and requires the PADEP to deposit all reclamation fees it 
collects into the RFO&M Account. The funds included in the account are 
held in trust by the Commonwealth to treat post-mining pollutional 
discharges at ABS legacy sites. This subsection also requires that the 
PADEP use the reclamation fees only for the purpose of paying the costs 
associated with treating such discharges. The reclamation fee is an 
adjustable source of revenue that PADEP will review annually to 
determine if adjustment of the fee is needed. In addition, this 
provision requires that all interest earned on the monies in the RFO&M 
Account be deposited into the account and be used only to pay the costs 
associated with treating post-mining pollutional discharges at ABS 
legacy sites.
c. Section 86.17(e)(2) (preparation of fiscal-year report on RFO&M 
Account)
    This provision requires the PADEP to prepare a report at the end of 
each fiscal year, which will include a financial analysis and 
projections of the revenues and expenditures of the RFO&M Account. The 
report must be made available for review by the Pennsylvania Mining and 
Reclamation Advisory Board (MRAB) and the general public. This 
provision establishes a process by which the MRAB and the general 
public can examine the PADEP's expenditure of funds from the RFO&M 
Account for the treatment of discharges at the ABS legacy sites, the 
amount of revenue deposited into the account during the prior fiscal 
year from the various dedicated revenue sources, the projected 
expenditures and projected revenue. Pennsylvania believes that this 
provision will assist OSM, the MRAB, affected persons in the industry, 
and interested members of the public, with their oversight of the 
PADEP's compliance with the requirements of 30 CFR 800.11(e) as applied 
to the ABS legacy sites, the Court ruling in Kempthorne, and the 
required program amendment at 30 CFR 938.16(h).
d. Section 86.17(e)(3) (amount of the reclamation fee)
    The amount of the reclamation fee is currently set at $100 per 
acre. Section 86.17(e)(3) requires the fee amount to be maintained at 
$100 per acre until December 31, 2009. After this initial period at 
$100 per acre, the reclamation fee will be adjusted annually based on 
criteria specified in Section 86.17(e)(3) and (4). This section also 
includes provisions concerning the potential for a permanent 
alternative source of funding to be used in lieu of the reclamation 
fee--if that alternative funding source meets the conditions in Section 
86.17(e)(3)(i) and (ii). Section 86.17(e)(3) provides that the PADEP 
was to begin annually adjusting the amount of the reclamation fee as of 
January 1, 2010, and will continue to do so, until either a permanent 
alternative funding source is established or the ABS Legacy Account 
becomes actuarially sound. Section 86.17(e)(3)(i) reiterates the 
commitment for annual adjustment of the reclamation fee until the ABS 
Legacy Account is actuarially sound, unless a permanent alternative 
funding source in place of the reclamation fee is used to fund the 
RFO&M Account. Section 86.17(e)(3)(ii) establishes the conditions that 
a permanent alternative funding source must meet before the reclamation 
fee could be discontinued and the permanent alternative source used 
instead. The State indicates that such an alternative funding source 
must be permanent; must provide sufficient revenues to maintain a 
balance in the RFO&M Account of at least $3,000,000; and must provide 
sufficient revenue to pay the annual operation and maintenance costs 
for all the ABS legacy sites.
e. Section 86.17(e)(4) (amount of the reclamation fee)
    The PADEP expected that the adjusted amount of the reclamation fee 
would become effective as of January 1, 2010, and will be similarly 
made effective on that date each year thereafter. Section 86.17(e)(3) 
sets the basic parameters for annually adjusting the amount of the 
reclamation fee, and Section 86.17(e)(4) lists the specific factors to 
be used in the PADEP's calculation of the adjusted amount. Section 
86.17(e)(3) requires that the reclamation fee be annually adjusted to 
ensure that there are sufficient revenues to maintain a balance of at 
least $3,000,000 in the RFO&M Account. Following the close of the 
Commonwealth's 2008-09 fiscal year (in June 2009), the PADEP must 
prepare its year-end financial analysis of the RFO&M Account pursuant 
to Section 86.17(e)(2). The 2008-09 fiscal-year report must include the 
PADEP's calculation of the amount of the reclamation fee for the 
calendar year commencing on January 1, 2010. Section 86.17(e)(4) 
prescribes the factors to be used for making the calculation--
essentially an analysis of the revenues and expenditures for the past 
year and projected revenues and expenditures for the current fiscal 
year.
    Section 86.17(e)(3) and (4) establish a mechanism for annually 
adjusting the amount of the reclamation fee. Pennsylvania indicates 
that the adjustment procedure is necessary to accommodate the 
fluctuations in the operation and maintenance costs for treating 
pollutional discharges at the ABS legacy sites that will occur over 
time. The PADEP believes that the adjustment procedure is also 
necessary in order to maintain a sufficient cushion in the RFO&M 
Account to prevent pollution and assure that the PADEP has

[[Page 48530]]

sufficient funds at any one time to treat the discharges at the ABS 
legacy sites, including any sites with discharges that were originally 
permitted under the ABS, and for which the bonds are subsequently 
forfeited before the posting of a full cost, conventional bond or other 
financial mechanism that is sufficient to cover the costs of discharge 
treatment, in accordance with 30 CFR 800.11(e).
f. Section 86.17(e)(5) (publishing amount of the adjusted reclamation 
fee; calculation appealable)
    Section 86.17(e)(5) is added to prescribe a procedure for the PADEP 
to publish the amount of the adjusted reclamation fee. The PADEP must 
review its calculation of the adjusted reclamation fee amount at a 
public meeting of the MRAB (most likely in October of each year), where 
the members of the MRAB, affected persons in the industry, and the 
general public will have an opportunity to comment on the PADEP's 
financial report and its calculation of the adjusted amount of the fee. 
The PADEP will subsequently publish the adjusted amount of the 
reclamation fee in the Pennsylvania Bulletin, with the adjusted amount 
becoming effective upon publication. This provision also establishes 
that PADEP's calculation of the adjusted reclamation fee is a final 
action appealable to the Environmental Hearing Board. According to 
Pennsylvania, section 86.17(e)(5) balances the PADEP's need for a 
flexible mechanism to assure funding to treat discharges at the ABS 
legacy sites with the interests of the industry and the public in 
reviewing, commenting on, and challenging, before an independent forum, 
the PADEP's administration of the RFO&M Account and the calculation of 
the new reclamation fee.
g. Section 86.17(e)(6) (conditions for ceasing collection of 
reclamation fee)
    Section 86.17(e)(6) requires the PADEP to cease assessment and 
collection of the reclamation fee when the ABS Legacy Account, 
established pursuant to section 86.187(a)(2)(i), is actuarially sound. 
The conditions which must be met for the ABS Legacy Account to become 
actuarially sound are prescribed here and in section 86.187(a)(2)(ii). 
The PADEP's current estimate of the annual operation and maintenance 
costs for treating the discharges at the ABS legacy sites is 
approximately $1,400,000. However, the ultimate annual amount needed 
for operation and maintenance costs will vary depending upon the number 
of additional underfunded sites which go into default and other 
relevant factors. When financial guarantees sufficient to cover 
reclamation costs have been approved for all mine sites permitted under 
the primacy ABS, no additional sites will need to be added to the class 
of ABS legacy sites. Once the PADEP completes construction of all 
necessary discharge treatment systems for all of the ABS legacy sites, 
the PADEP will determine the amount of annual operation and maintenance 
costs, including recapitalization costs, which will be necessary to 
treat the discharges at all of the ABS legacy sites. This provision 
allows the PADEP to cease collection of the reclamation fee when the 
ABS Legacy Account contains funds which generate interest at a rate 
sufficient to pay the annual operation and maintenance costs for 
treating post-mining pollutional discharges at all the ABS legacy 
sites. At that point, the State believes that the PADEP will always 
have sufficient funds on hand in the ABS Legacy Account to cover the 
costs of treating the discharges at all the ABS legacy sites, and that 
Pennsylvania will have met the requirements of 30 CFR 800.11(e) without 
the need for additional revenue from the reclamation fee.
    Findings: See findings in the section below.
Summary of Regulatory Changes--Section 86.187, Use of Money
a. Section 86.187(a)(1) (deposit of reclamation fee into RFO&M Account)
    Section 86.187 (relating to use of money) specifies the purposes 
for which the PADEP must use monies from fees, fines, penalties, bond 
forfeitures and other monies received under the PASMCRA, as well as 
interest earned on these monies. Pennsylvania believes that the 
enforceable regulatory mechanism created by these revisions will enable 
its bonding program to meet the requirements of 30 CFR 800.11(e).
    This provision, in conjunction with section 86.17(e)(1), has been 
revised to establish a separate subaccount within the SMCR Fund called 
the RFO&M Account, and to require that the reclamation fees collected 
by the PADEP pursuant to section 86.17(e) must be deposited into the 
RFO&M Account. The provision also directs that the interest accrued on 
collected reclamation fees must be deposited into the RFO&M Account.
b. Section 86.187(a)(1)(i) (deposit of civil penalties into RFO&M 
Account)
    Under section 18(a) of PASMCRA, civil penalties may be used by the 
PADEP for reclamation of surface coal mine sites, restoration of water 
supplies affected by surface coal mining, or for any other conservation 
purposes provided by the PASMCRA 52 P.S. Section 1396.18(a). The PADEP 
is thus authorized to use civil penalty monies, as a supplement to 
forfeited bonds, for purposes of reclaiming the ABS legacy sites 
including treatment of post-mining pollutional discharges at these 
sites. New section 86.187(a)(1)(i) will require the PADEP to deposit 
into the RFO&M Account a portion of the monies collected from civil 
penalties assessed pursuant to PASMCRA, and to use those monies 
deposited into the account to pay the costs associated with treating 
discharges at the ABS legacy sites. PADEP believes that, in order to 
comply with the Court's ruling in Kempthorne, it must identify and 
dedicate specified sources of revenue that will generate enough money 
to cover the costs for treating discharges at all the ABS legacy sites. 
This subsection identifies a source of revenue--civil penalties 
collected pursuant to PASMCRA--and requires the PADEP to use this 
source of revenue to fund the discharge-treatment costs of the ABS 
legacy sites.
    This provision recognizes that a percentage of the civil penalties 
collected must be allotted to the Environmental Education Fund by law. 
(See 35 P.S. Section 7528.) Section 86.187(a)(1)(i) also caps the 
amount of civil penalties that must be deposited into the Reclamation 
Fee O&M Account during a single fiscal year at $500,000. If the PADEP 
collects more than $500,000 in civil penalties during a fiscal year, 
section 86.187(a)(1)(i) gives the PADEP discretion to deposit the 
excess amount into the SMCR Fund where it may be used for the purposes 
described in section 86.187(a)(3).
    This provision provides an additional source of revenue for the 
RFO&M Account which is restricted to the same uses as all other funds 
deposited into the account. This additional revenue will further 
enhance the financial solvency of the account, in addition to the 
adjustable reclamation fee, and will provide PADEP with even more 
dedicated revenue for water treatment at ABS legacy sites.
c. Section 86.187(a)(1)(ii) (deposit of interest earned on other monies 
in the SMCR Fund into the RFO&M Account)
    Similar to the deposit of civil penalties required by section 
86.187(a)(1)(i), this section is being added to authorize the PADEP to 
deposit into the RFO&M Account a portion of the interest that is earned 
on other monies in the SMCR Fund. The SMCR Fund includes monies from

[[Page 48531]]

released bonds, license fees, and other sources; these funds earn 
interest that may be used by the PADEP for the purposes specified by 
section 18(a) of PASMCRA. See 52 P.S. section 1396.18(a); 25 Pa. Code 
section 86.187(a). This provision gives the PADEP discretion as to the 
amount of interest earned on other monies in the SMCR Fund which will 
be deposited into the RFO&M Account during any given fiscal year.
d. Section 86.187(a)(1)(iii) (deposit of other monies into the RFO&M 
Account)
    Section 86.187(a)(1)(iii) will give the PADEP authority to deposit 
other monies from sources such as legislative appropriations or 
donations into the RFO&M Account. In addition, in the event a change in 
the applicable law provides for it, this provision will give the PADEP 
authority to deposit into the RFO&M Account the fees that will be 
collected for ``sum-certain financial guarantees needed to facilitate 
full-cost bonding.'' (These devices are also known as ``conversion 
assistance financial guarantees'' or ``conversion assistance bonds'', 
and are described below in Section B.)
e. Section 86.187(a)(1)(iv) (restriction on use of monies in the RFO&M 
Account)
    Section 86.187(a)(1)(iv) specifies that all monies deposited into 
the RFO&M Account must be used to pay the costs associated with 
treating the post-mining pollutional discharges at the ABS legacy 
sites. This provision establishes that the funds held in the RFO&M 
Account are being held by the State in trust for the benefit of all the 
people of the State in order to protect their rights under Article I, 
Section 27 of the Pennsylvania Constitution. Pennsylvania believes that 
an actuarially sound account will satisfy the requirements of 30 CFR 
800.11(e).
f. Section 86.187(a)(2) (use of monies received from forfeiture of 
bonds)
    A minor editorial change is being made to this provision to clarify 
that funds received from the PADEP's forfeiture of bonds on ABS legacy 
sites will be used to reclaim the land and restore water supplies 
affected by the surface mining operations upon which liability was 
charged on the bond, and, more specifically, in accordance with the 
provisions in section 86.187(a)(2)(i) and (ii), which are being added 
as part of this final rulemaking.
g. Section 86.187(a)(2)(i) (deposit of monies from bonds forfeited on 
ABS Legacy Sites into separate subaccount)
    Section 86.187(a)(2)(i) establishes a separate subaccount within 
the SMCR Fund called the ABS Legacy Account. The funds received from 
the bonds forfeited on ABS legacy sites, and all interest accrued on 
such monies, must be deposited into the ABS Legacy Account according to 
new section 86.187(a)(2)(i). Section 86.187(a)(2)(i) will also provide 
regulatory authorization for the PADEP to deposit monies from other 
sources, such as appropriations, donations, or interest earned on other 
monies in the SMCR Fund, into this account. Finally, section 
86.187(a)(2)(i) authorizes the PADEP to transfer ``excess'' monies from 
the RFO&M Account into the ABS Legacy Account. This provision requires 
the PADEP to seek the MRAB's review and recommendation prior to 
transferring any ``excess'' funds. Pennsylvania indicates that section 
86.187(a)(2)(i) responds to the court ruling in the Kempthorne case 
regarding the obligation of the PADEP to meet the requirements of 30 
CFR 800.11(e).
    Section 86.187(a)(2)(i) will establish a type of savings account 
for monies ultimately to be used to pay the annual operation and 
maintenance costs associated with all of the ABS legacy sites. The 
PADEP currently has approximately $4.8 million in forfeited bonds held 
for primacy ABS forfeited discharge sites; these funds will constitute 
the initial principal in the ABS Legacy Account. Section 
86.187(a)(2)(iii), discussed below, prohibits the PADEP from making any 
disbursements from the ABS Legacy Account until the account becomes 
actuarially sound. The RFO&M Account will be used to pay the ongoing 
operation and maintenance costs on a pay-as-you-go basis, while funds 
in the ABS Legacy Account accumulate from earned interest and other 
potential income sources. Pennsylvania believes that the amendments to 
section 86.17(e) will enable the PADEP to annually replenish and 
maintain funds in the RFO&M Account sufficient to cover the annual 
operation and maintenance costs for treating discharges at the ABS 
legacy sites. Pennsylvania indicates that the ABS Legacy Account will 
grow to the point that the interest earned on that account will be 
enough to cover all the annual operation and maintenance costs for the 
ABS legacy sites, without the need to generate any additional revenue 
from other sources such as the reclamation fee.
h. Section 86.187(a)(2)(ii) (restriction on use of monies in ABS Legacy 
Account)
    This provision requires that all monies deposited into the ABS 
Legacy Account be used only to pay the operation and maintenance costs 
for treating discharges at the ABS legacy sites. As in section 
86.187(a)(1)(iv), the PADEP is declaring that it is establishing the 
ABS Legacy Sites Trust as an account in the SMCR Fund. The PADEP has 
included language in section 86.187(a)(2)(ii) that specifically 
establishes the trust called the ABS Legacy Account. This regulation 
states that all monies deposited in the ABS Legacy Account are held by 
the State in trust for the benefit of the people of the State to 
protect their rights under Article 1, Section 27 of the Pennsylvania 
Constitution.
i. Section 86.187(a)(2)(iii), (A), (B), (C) (restrictions on ABS Legacy 
Account)
    Section 86.187(a)(2)(iii) prohibits the PADEP from making any 
disbursements from the ABS Legacy Account until the account becomes 
actuarially sound. The conditions that must be met for the ABS Legacy 
Account to become actuarially sound are prescribed here. First, 
financial guarantees sufficient to cover all reclamation costs must 
have been approved by the PADEP for all mine sites permitted under the 
primacy ABS. Second, the PADEP must have completed construction of all 
necessary discharge treatment systems for all of the ABS legacy sites. 
Once the entire class of ABS legacy sites is known, and all necessary 
discharge treatment systems have been constructed for these sites, the 
PADEP will be able to establish the amount of annual operation and 
maintenance costs, including recapitalization costs, which will be 
necessary to treat all the discharges at all of the ABS legacy sites. 
Once this figure is known, the third condition precedent may be 
satisfied, i.e., the ABS Legacy Account and Reclamation O&M Trust 
Account must contain funds that generate interest at a rate and amount 
sufficient to pay the annual operation and maintenance costs for 
treating all post-mining pollutional discharges at all the ABS legacy 
sites. Pennsylvania believes that once the ABS Legacy Account becomes 
actuarially sound, the PADEP will always have sufficient funds on hand 
in the Account to cover the costs of treating the discharges at all the 
ABS legacy sites, and therefore, Pennsylvania's bonding program will 
meet the requirements of 30 CFR 800.11(e) without the need for any 
revenue from the reclamation fee or the other revenue sources dedicated 
to the RFO&M Account.

[[Page 48532]]

j. Section 86.187(a)(2)(iv) (transfer of remaining funds in RFO&M 
Account to ABS Legacy Account)
    Section 86.187(a)(2)(iv) provides for termination of the RFO&M 
Account when the ABS Legacy Account becomes actuarially sound. This 
provision authorizes the PADEP to transfer the remaining funds in the 
RFO&M Account into the ABS Legacy Account when the latter account 
becomes actuarially sound. At that point, the RFO&M Account will no 
longer be necessary and will terminate. In addition, the reclamation 
fee (or an alternative permanent funding source established in lieu of 
the reclamation fee) will no longer be needed and will cease to be 
collected, and the deposit of civil penalty monies into the RFO&M 
Account pursuant to section 86.186(a)(1)(i) will also cease.
    Findings: Sections 86.17(e), Reclamation Fees and 86.187, Use of 
Money
    By creating the RFO&M Account that is funded in large part by an 
adjustable reclamation fee dedicated to the treatment of AMD discharges 
on bond forfeiture sites that were originally covered by the ABS, 
Pennsylvania has created an alternative system of financial guarantees 
consistent with 30 CFR 800.11(e). Our finding recognizes that 
Pennsylvania has provided an alternative system that provides 
sufficient funding to treat AMD pollution originating from a defined 
set of bond forfeiture sites (ABS legacy sites), that the system can be 
adjusted to accommodate increases and decreases in treatment 
obligations, that implementation is supported by an enforceable 
commitment by Pennsylvania to provide the funding needed to construct 
treatment facilities, and that Pennsylvania has considered and 
accounted for foreseeable risks to its operation. Our finding also 
recognizes that even though this system is restricted to the treatment 
of mine drainage on ABS legacy sites, the system provides a substantial 
economic incentive to active mine operators because treatment costs are 
tied to reclamation fees assessed on each active operation. These 
reclamation fees may be raised due to operators' failures to provide 
for fully funded treatment guarantees on active sites that are 
subsequently forfeited. Indeed, any increases in ABS legacy site 
treatment costs potentially raise reclamation fee assessments on active 
mine sites.
    There are no specific Federal counterparts to the changes to 25 Pa. 
Code 86.17(e), 86.187(a)(1) and 86.187(a)(2). However, for the reasons 
set forth above, we find that these changes are consistent with the 
Federal regulation at 30 CFR 800.11(e), which contains the criteria for 
approval of an ABS, and we are therefore approving the changes. 
Nevertheless, some of the revisions warrant more detailed explanation, 
which follows.
    ABS Legacy Account: We find that the specific conditions at section 
86.17(e)(6)(i)(iii) for determining when the ABS Legacy Account is 
financially capable of covering the annual operation and maintenance 
costs for treating post-mining pollutional discharges at the ABS legacy 
sites are sufficient and observe that OSM will have oversight 
responsibilities at the time that any such transition to the use of the 
ABS Legacy Account is being proposed and acted upon. OSM's finding is 
limited to the creation of, or an alternative source of funding to, the 
RFO&M Account. When the State notifies OSM that it has determined that 
the ABS Legacy Account is deemed to be actuarially sound in accordance 
with the provisions of section 86.17(e)(6), OSM will review the basis 
for such a determination and approve or disapprove any termination of 
the reclamation fee or alternative permanent funding source.
    Alternative Permanent Funding Source: We are hereby approving these 
regulations at sections 86.17(e)(3), (e)(3)(i), (e)(3(ii), and 
86.187(a)(2)(iv), which refer to a possible ``alternative permanent 
funding source'' that could be created to substitute for the 
reclamation fee. The creation of any alternative permanent funding 
source, however, must first be proposed to us as a State program 
amendment, and could not be used to replace the reclamation fee to pay 
for treatment costs on ABS legacy sites until we approve such an 
amendment.
    Other Sources of Funding: Sections 86.17(e)(4)(ii), (e)(4)(v), 
86.187(a(1)(iii), and (a)(2)(iv) refer to ``other sources'' of money, 
including appropriations, donations, and fees paid by operators who 
receive conversion assistance guarantees. The regulations provide that 
these funds from ``other sources'' may be deposited into the RFO&M 
Account and, except for fees for conversion assistance guarantees, into 
the ABS Legacy Account. 86.187(a)(1)(iii), (a)(2)(i). The transfer of 
fees from conversion assistance guarantees into the Reclamation Fee O&M 
Account must be authorized by State law. Therefore, no such transfers 
may take place until Pennsylvania enacts the necessary statutory 
revision, and then obtains our approval of the revision as a program 
amendment. Any use of ``other sources'' of money cannot be made until 
we either approve the proposed sources through the State program 
amendment process or decide that the proposed sources do not constitute 
program amendments requiring our approval.

Part B. The Conversion Assistance Program

    When implementing the revised full-cost bonding program and 
converting the ABS permits to full-cost bonding, Pennsylvania had 
concerns regarding the financial ability of existing permittees to post 
significantly-increased bond amounts. Operators contemplating a new 
mining operation after August 2001 would be able to factor the revised 
bond guidelines into their decision making process, but existing ABS 
operators had already made financial and operational commitments based 
on their existing bonds and the ABS. Surety providers had made 
decisions to provide existing ABS bonds based on the risk they were 
willing to take at the time of permit issuance. As a result, many 
operators were unlikely to be able to comply with the mandatory bond 
adjustment. Those operators would be faced with the uncertainty of a 
negotiated settlement with the Department regarding bonding and 
reclamation liability or risk being forced out of business. The choice 
for the surety industry would likewise be difficult. They could either 
provide more bonds than their risk assessment dictated or be subject to 
forfeiture of the existing bond. There was a risk to Pennsylvania that 
forfeiture of existing inadequate bonds would further increase the 
deficit of the ABS.
    To address these risks, in 2001-2002, the PADEP developed and 
implemented a conversion assistance program in which Pennsylvania 
essentially operates as a surety and provides part of the bonding for 
sites converting to full-cost bonding, thus easing the transition for 
active operators to full-cost bonding and thereby preventing 
bankruptcies and/or abandonment of sites. Funded with an initial 
general-revenue appropriation of $7 million in June 2001 and 
supplemented by annual premiums paid by the industry, the Department 
issued a ``land reclamation financial guarantee'' in a sum-certain 
amount to individual ABS permittees required to convert to a full-cost 
bond for land reclamation on an existing permit. See Act of June 22, 
2001 (P.L. 979, No. 6A) known as the General Appropriation Act of 
2001,'' at 213. The Land Reclamation Financial Guarantees (LRFG) were 
issued only to ABS permittees that were converting to full-cost 
bonding; permit applicants

[[Page 48533]]

who submitted applications after termination of the ABS are not 
eligible for the conversion assistance program.
    The PADEP indicates that as of November 30, 1999, the forfeiture 
rate for primacy ABS permits was 10.4%. The PADEP concluded that, based 
on this historic rate, the $7 million principal would cover up to $70 
million in bond exposure. The PADEP determined that the $7 million, 
when combined with existing site bonds, would be sufficient to pay for 
all forfeitures that may occur. Additionally, premiums collected for 
the LRFGs would provide additional funds to complete reclamation.
    As part of this submission, Pennsylvania requests that OSM approve 
the Conversion Assistance Program and its use of the LRFG as a 
financial guarantee equivalent to a conventional bond. Section 4(d.2) 
of PASMCRA is submitted as part of this program amendment as the 
authority for employing LRFGs under the Conversion Assistance Program.
    Finding: Pennsylvania's use of LRFGs is consistent with the use of 
other conventional bonding mechanisms that provide sum-certain amounts 
payable to the regulatory authority to provide for reclamation in the 
event of operator default. In this case, the form of performance 
guarantee is provided by the Commonwealth of Pennsylvania as conversion 
assistance in an amount necessary to supplement the original site-
specific bond, such that the total amount of bond coverage provided is 
equivalent to the amount required under a CBS. In effect, for a limited 
number of permits that were in the ABS, and that are transitioning to 
full-cost bonding, the State is acting as a surety to guarantee part of 
the reclamation costs. However, SMCRA Section 509 (b) provides that a 
surety executing a bond must be ``* * * a corporate surety licensed to 
do business in the State * * *'' Given that restriction, OSM cannot 
approve the conversion assistance program as a conventional bond as 
requested by PADEP. Rather, OSM finds that the conversion assistance 
program is an alternative system that will achieve the objectives and 
purposes of a bonding program in accordance with Section 509(c) of 
SMCRA, and that the conversion assistance program meets the objectives 
of an ABS pursuant to 30 CFR 800.11(e). OSM is approving the conversion 
assistance program as a one-time alternative bonding mechanism 
implemented solely for the conversion process from the ABS to 
conventional bonding.
Other Sites Not Fully Converted to Full Cost Bonding
    PADEP stated that at the end of the conversion process (i.e., 
active ABS permits converting to conventional bonding) two permitted 
sites remain insufficiently bonded. These two anthracite operations are 
permitted by Lehigh Coal & Navigation (LCN) and Coal Contractors Inc. 
(CCI). The State contends it has made provisions for fully funding the 
outstanding reclamation obligations for these two sites through 
reclamation and payment schedules. PADEP stated in its submission that 
the land reclamation on the LCN site ``does not present a potential 
liability to Pennsylvania at this time because it is being adequately 
addressed through the Consent Order and Agreement (CO&A) process and, 
in any event, will most likely be addressed through permit transfer or 
remining operations.'' PADEP indicated the bond deficiency as of June 
2, 2008, amounted to $8.96 million, which was being addressed through 
quarterly payments ending in December 2011. In addition, LCN is 
required under a CO&A to complete backfilling at a rate of 1.7 million 
cubic yards annually to meet the bond obligation.
    We disagree with the State's assertion that the LCN site land 
reclamation is not a potential liability; neither bond deficiency 
payments nor land reclamation schedules pursuant to a CO&A, potential 
permit transfers, nor potential remining operations are equivalent 
substitutes for a full cost bond. None of these instruments constitutes 
the guarantee of sufficient funding to pay for the land reclamation 
required to be performed under the approved State program.
    For the CCI site, Pennsylvania contends it has sufficient monies 
available in the SMCR Fund to complete land reclamation in the event of 
forfeiture. The State estimates the CCI land reclamation liability in 
excess of the available bond amount to be about $170,000. 
Pennsylvania's contention that it has sufficient funds falls short of 
the type of ``guarantee'' ensured by the posting of an adequate bond, 
because it is not enforceable.
    Finding: Pennsylvania has not provided guaranteed funding to cover 
the cost of the outstanding land reclamation liabilities at the LCN and 
CCI sites in the event the bonds for these sites are forfeited. 
Therefore, OSM is revising the required amendment at 30 CFR 938.16(h) 
to require the PADEP to ensure that its program provides suitable, 
enforceable funding mechanisms that are sufficient to guarantee 
coverage of the full cost of land reclamation at all sites originally 
permitted and bonded under the ABS.

Part C. Trust Funds as an Alternative System and Other Equivalent 
Guarantee

    Beginning in the early 1990s, Pennsylvania developed and 
implemented treatment trust funds to guarantee the treatment of 
unanticipated post-mining pollutional discharges in perpetuity. 
Permittees unable or unwilling to provide a surety or collateral bond 
to cover the costs of a post-mining discharge can establish a site-
specific trust fund managed by a third-party trustee. The purpose of 
the trust is to generate sufficient income to cover all costs 
associated with treating these discharges in perpetuity. Trust funds 
have been established to cover discharge-treatment costs at ABS sites, 
although the Department's implementation of trust funds is not limited 
to sites formerly covered by the ABS. Pennsylvania had received 
approval from OSM to add annuities and trust funds to the list of 
acceptable collateral bonds on May 13, 2005. 70 FR 25472, amended at 70 
FR 52916.
    Pennsylvania is submitting the provision in Section 4(d.2) of 
PASMCRA for the additional purpose of providing the authority for the 
establishment of site-specific trust funds to be used to pay the costs 
of treating unanticipated post-mining pollutional discharges in 
perpetuity. Pennsylvania is requesting approval of site-specific trusts 
as an alternative financial assurance mechanism (not a collateral bond) 
consistent with Section 509(c) of SMCRA and other applicable provisions 
of SMCRA. Pennsylvania states that its site-specific trust fund program 
is an alternative financial system to a bonding program that achieves 
the objectives and purposes of a conventional bonding program, and 
provides equivalent guarantees no less effective than a performance 
bond and 30 CFR subchapter J.
    In support of its request for approval of site-specific trusts as 
an alternative financial assurance mechanism consistent with Section 
509(c) of SMCRA and other applicable provisions of SMCRA, PADEP 
provided descriptions of its authority to enter into trust agreements, 
trust development and management process, and some of the 
administrative and financial components. More specifically, PADEP has 
provided the following: Discussions of its authority, under Section 
4(d.2) of PASMCRA, to establish alternative financial assurance 
mechanisms; the use of the CO&A and a companion Trust Agreement; 
factors currently used to

[[Page 48534]]

determine the amount of a site-specific trust fund; and the use of 
AMDTreat for treatment cost estimation. PADEP's proposed amendment also 
discusses rates of return, inflation rates, and volatility rates used 
on previous trust agreements as well as how operation and maintenance 
and recapitalization costs are addressed. Finally, the amendment 
submission describes trust disbursement procedures and flexibility to 
allow the permittee a reasonable period of time to fully fund a 
treatment trust. (Administrative Record No. PA 802.44, Attachments 5 
and 7).
    Site-specific trusts are established by forms prescribed and 
furnished by the PADEP. The trust covers the area of land within the 
permit area necessary for the operator to operate and maintain the 
treatment facility. The amount of the trust is calculated based on all 
the costs of treating the post-mining discharge in perpetuity, and the 
trust generates sufficient money to cover the costs of treating the 
discharge even if the operator defaults on its obligation. Moreover, 
unlike a performance bond--a sum-certain instrument which does not 
increase in value--trust funds can keep pace with inflation, making 
them more suitable for guaranteeing long-term treatment obligations. 
Liability under the trust is for the duration of the reclamation. The 
CO&A is executed by the operator and the PADEP, and the declaration of 
trust will be executed by a trustee who must be registered to do 
business in Pennsylvania and meet criteria for reliability similar to a 
surety company. Finally, the trust amount is adjusted by the PADEP in 
the event the cost of reclamation changes, in accordance with Section 
509(e) of SMCRA. Thus, Pennsylvania asserts the trust funds program 
assures that the State will have available sufficient money to complete 
the reclamation plan for sites covered by site-specific trusts.
    Pennsylvania states that site-specific trusts also provide a 
substantial economic incentive for the permittee to comply with all 
reclamation provisions because the permittee must fund the necessary 
trust principal. Moreover, the CO&A for the treatment trust contains 
stipulated civil penalties which are invoked if the operator fails to 
comply with the terms of the CO&A or the Trust Agreement. A failure to 
comply would also effectively put the operator out of business due to 
the permit block and permit revocations that would result. Thus, 
Pennsylvania concludes, all of these aspects of the trust fund program 
render it no less stringent than Section 509 of SMCRA.
    Finding: When we approved Pennsylvania's use of treatment trusts 
and annuities as collateral bonds in 2005, we noted that Section 4(d.2) 
of PASMCRA expressly provides for the establishment of alternative 
financial assurance mechanisms including site-specific trust funds for 
the perpetual treatment of unanticipated post-mining discharges. We 
noted that the Federal rules do not expressly include site-specific 
trust funds or annuities in the Federal collateral bonding regulations 
at 30 CFR 800.21. However, with the safeguards that were included in 
the State's provision, it appeared that trust funds and annuities 
presented no greater risks than those inherent in those forms of 
collateral bonding expressly named in 30 CFR 800.21. Therefore, we 
concluded that the addition of Subsection (f) of Pennsylvania's 
regulations would not render the Pennsylvania program less effective 
than 30 CFR 800.21 in meeting the bonding requirements of Section 509 
of SMCRA. 70 FR at 25474.
    While we have approved Pennsylvania's allowance of trust funds as a 
form of collateral bond, the Federal regulations at 30 CFR 800.11(e) 
provide another option for approving trust funds and annuities. Those 
regulations implement the provision in section 509(c) of SMCRA, 30 
U.S.C. 1259(c), authorizing OSM and the States to establish an 
``alternative system that will achieve the objectives and purposes of 
the bonding program pursuant to this section.'' The regulations at 30 
CFR 800.11(e) require that those alternative systems ``(1) * * * assure 
that the regulatory authority will have available sufficient money to 
complete the reclamation plan for any areas which may be in default at 
any time;'' and ``(2) * * * provide a substantial economic incentive 
for the permittee to comply with all reclamation provisions.'' As we 
noted in our decision approving trust funds as a form of an ABS in 
Tennessee, a fully-funded trust or annuity would satisfy the first 
criterion, while the permittee's obligation to provide the monies 
needed to establish a trust fund or annuity and the express terms of 
the trust would satisfy the second criterion. 72 FR 9616, 9618-9 (March 
2, 2007).
    We find that trust funds may serve as alternative funding 
mechanisms intended to assure long-term treatment of pollutional 
discharges. A fully-funded trust, i.e., one that generates sufficient 
interest to pay for the costs of establishing a treatment facility, as 
well as the costs of treating pollutional discharges in perpetuity, is 
consistent with, and therefore no less effective than, the Federal 
regulations at 30 CFR 800.11(e). Section 4(d.2) of PASMCRA, and the use 
of site-specific trust funds as alternative bonding financial 
mechanisms, are hereby approved. We find, however, that specific 
approval of the underlying financial components Pennsylvania has used 
or is currently using to develop treatment trusts is not necessary. 
That is, we make no findings with respect to explicit portfolio 
mixtures, volatility rates, inflation rates, the 11.1% expected rate of 
return