Kentucky Regulatory Program, 3948-3959 [2018-01635]

Agencies

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

[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)]
[Rules and Regulations]
[Pages 3948-3959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01635]


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DEPARTMENT OF THE INTERIOR

Office of Surface Mining Reclamation and Enforcement

30 CFR Part 917

[KY-256-FOR; OSM-2012-0014; S1D1S SS08011000 SX064A000 189S180110; 
S2D2S SS08011000 SX064A000 18XS501520]


Kentucky Regulatory Program

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

ACTION: Final rule; approval with exceptions.

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SUMMARY: We, the Office of Surface Mining Reclamation and Enforcement 
(OSMRE), are approving, with exceptions, an amendment to the Kentucky 
regulatory program (hereinafter, the ``Kentucky program'') under the 
Surface Mining Control and Reclamation Act of 1977 (SMCRA or the Act). 
Kentucky submitted a proposed amendment to OSMRE that revises its 
bonding regulations to satisfy, in part, concerns OSMRE conveyed to the 
State pertaining to bonding inadequacies.

DATES: The effective date is February 28, 2018.

FOR FURTHER INFORMATION CONTACT: Robert Evans, Lexington Field Office 
Director. Telephone: (859) 260-3900. Email: [email protected].

SUPPLEMENTARY INFORMATION:

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

I. Background on the Kentucky Program

    A. Background: Kentucky Regulatory 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 program includes, 
among other things, State laws and regulations that govern surface coal 
mining and reclamation operations in accordance with the Act and 
consistent with the Federal regulations. See 30 U.S.C. 1253(a)(1) and 
(7). On the basis of these criteria, the Secretary of the Interior 
conditionally approved the Kentucky program effective May 18, 1982. You 
can find background information on the Kentucky program, including the 
Secretary's findings, the disposition of comments, and conditions of 
approval of the Kentucky program in the May 18, 1982, Federal Register 
(47 FR 21404). You can also find later actions concerning Kentucky's 
program and program amendments at 30 CFR 917.11, 917.12, 917.13, 
917.15, 917.16, and 917.17.
    B. Background: Kentucky Bonding Program: The following is a 
description of the bonding program implemented by Kentucky and approved 
by OSMRE in 1986. Permittees are required to furnish a performance bond 
that covers the area of land upon which the operator will initiate and 
conduct surface coal mining and reclamation operations. The amount of 
the bond should be sufficient to assure completion of the reclamation 
plan. Kentucky's program included two options to post bond: (1) Post a 
full-cost bonding (performance bond covering the entire cost of 
reclamation); or (2) participate in a voluntary bond pool (VBP) and 
post a reduced permit-specific performance bond. The VBP, an 
alternative bonding system (ABS), was limited to qualified applicants 
and required membership fees and production fees that were used to 
supplement the reduced permit-specific performance bonds posted for 
surface mining operations. Generally, the second option was used by 
smaller operators that would otherwise have difficulty posting a full-
cost bond due to limited financial resources.
    1. Permit-Specific Bonds for Non-VBP Members: If an applicant/
permittee elected not to participate or did not qualify to become a 
member of the VBP, the permittee was required to submit an adequate 
``full-cost'' bond using a basic bond rate of $2500/acre to which 
several site factors (difficulty of mining, geologic/hydrologic 
concerns, permanent structures, etc.) were added as additional rates 
per acre if necessary. Over 90% of Kentucky permits were not part of 
the VBP.
    2. Alternative Bonding System: In lieu of requiring all permittees 
to submit permit-specific performance bonds covering the full cost of 
permit-specific reclamation for coal mining operations, we approved a 
request from Kentucky to implement an ABS as provided for in 30 CFR 
800.11(e). The requirements of Sec.  800.11(e) provide that an 
alternative system to the permit-specific bond requirements could be 
authorized if the following two conditions are met: (1) The ABS would 
assure sufficient money is available to complete the reclamation plan 
for any areas which may be in default at any time and (2) the ABS 
provides a substantial economic incentive for the permittee to comply 
with all reclamation provisions. Kentucky's ABS created the VBP. We 
announced approval of Kentucky's ABS in the July 18, 1986, Federal 
Register (51 FR 26002).
    a. ABS--Voluntary Bond Pool Fund Membership: Participation in the 
Kentucky bond pool was voluntary, limited to qualified participants, 
and required application for membership. Bond pool members, herein 
referred to as VBP members, were permitted to post a performance bond 
to cover the costs of reclamation under the Kentucky program that was 
less than the estimated full cost of reclamation if the member 
qualified for participation in the bond pool and paid the required fees 
to the VBP's supplemental fund. The VBP fund would then be used to 
supplement the reduced operator bond in the event of operator default 
on reclamation. Acceptance into the VBP was based on the applicant's 
financial standing and reclamation compliance record.
    Applicants for membership in the VBP qualified for an ``A,'' ``B,'' 
or ``C'' rating, based on length of time the applicant had held a 
permit under the same permittee name and the type of compliance rating, 
``excellent'' or ``acceptable,'' the permittee had exhibited. The 
rating method also considered such things as number and seriousness of 
violations for which the applicant had been cited, applicant's 
abatement of violations, timely payment

[[Page 3949]]

of penalties, and the applicant's bonding experiences. Other membership 
restrictions applied based on ownership and control by, of, or with the 
applicant.
    Membership fees and tonnage fees were collected from VBP members 
and placed in an interest-bearing account. The fees were used for the 
following purposes: (1) To reclaim permit areas covered by the fund in 
the event of bond forfeiture (after permit-specific bonds were used); 
(2) to cover administrative costs of the fund; (3) to fund audits and 
actuarial studies required for the fund; and (4) to cover operating and 
legal expenses of the bond pool commission. Less than 10% of Kentucky 
permits were in the VBP.
    b. ABS--Voluntary Bond Pool Commission: Kentucky created a 
voluntary bond pool commission consisting of seven members that was 
responsible for: Reviewing membership applications and ratings; 
notifying members of the tonnage fee required; revoking or reinstating 
membership; employing a certified public accountant to audit the VBP 
fund; authorizing necessary expenditures from the fund; and reporting 
yearly to the governor on the financial status of the fund. The VBP 
fund was administered by the Natural Resources and Environmental 
Protection Cabinet, now known as the Kentucky Energy and Environment 
Cabinet (the cabinet).
    c. ABS--Permit-Specific Performance Bond for VBP Members: VBP 
members were required to provide reduced permit-specific bond amounts 
as follows: For each acre or fraction thereof in the proposed permit 
area, a basic bond rate of $500/acre was required for ``A'' rated 
members; $1,500/acre for ``B'' rated members; and $2,000/acre for ``C'' 
rated members. Other site factors (for difficulty of mining, geologic/
hydrologic concerns, permanent structures, etc.) were added as 
additional rates/acre to the basic bond amount to determine the final 
bond amount. For each acre of prime farmland, $1,500 additional bond 
was required. A permit would not be issued to a VBP member until the 
permit-specific bond was posted.
    d. ABS--Membership Fees and Tonnage Fees: Membership fees and 
production fees (per ton) were paid to the fund by VBP members. 
Membership fees were based on ratings as follows: $1,000 for A-rated 
members, $2,000 for B-rated members, and $2,500 for C-rated members. 
Tonnage fees were based on the amount of coal produced as follows: $.08 
cents per ton of coal extracted by surface mining and $.01 cent per ton 
of coal extracted by underground mining. If the VBP fund reached $7 
million, VBP members who had made 36 or more monthly payments into the 
VBP fund were notified that tonnage fees would be suspended. Tonnage 
fees were reinstated when the VBP fund fell below $5 million. These 
minimum and maximum dollar numbers could be raised under certain 
circumstances.

II. Description of the Proposed Amendment

    A review conducted by OSMRE and Kentucky resulted in a report 
entitled ``National Priority Oversight Evaluation of Adequacy of 
Kentucky Reclamation Performance Bond Amounts dated January 4, 2011.'' 
The review concluded that reclamation performance bonds in Kentucky 
were not always sufficient to complete the reclamation required in the 
approved permit. Bond forfeiture studies determined that a majority of 
forfeited permits did not always have sufficient bond to complete the 
reclamation to permanent program standards. Consequently, on May 1, 
2012, in accordance with 30 CFR 733.12(b), we sent a letter to the 
cabinet (referred to as a 733 Notice) stating that we had reason to 
believe that Kentucky was not implementing, administering, enforcing, 
and maintaining the reclamation bond provisions of its approved program 
in a manner that ensured the amount of the performance bond for each 
surface coal mining and reclamation operation was ``sufficient to 
assure the completion of the reclamation plan if the work had to be 
performed by the regulatory authority in the event of forfeiture,'' as 
required by section 509(a) of SMCRA. As stated in the letter, our 
review indicated that from 2008 to 2011, bond forfeiture proceeds were 
insufficient to complete the approved reclamation plan for 51 of the 61 
permits for which bond were forfeited in Kentucky. As a result, we 
required Kentucky to take immediate and long-term steps to ensure bond 
amounts are adequate to complete reclamation in the event of 
forfeiture.
    Kentucky responded to the 733 Notice by taking action and sending 
us statutory and regulatory provisions on three different occasions. 
Kentucky sent us information on September 28, 2012, (Administrative 
Record No. KY-2000-01); July 5, 2013, (Administrative Record No. KY-
2000-02); and December 3, 2013, (Administrative Record No. KY-2000-03). 
We announced receipt of the September 28, 2012, submission on February 
20, 2013, in the Federal Register (78 FR 11796), (Administrative Record 
No. KY-2000-01d). We combined that submission with the July 5, 2013, 
and December 3, 2013, submissions and announced them collectively in 
the Federal Register on March 26, 2015, (Administrative Record No. KY-
2000-04b). Public comments were received but no hearing was requested.
    Emergency Kentucky Administrative Regulations (KARs) were submitted 
by Kentucky in 2012 that immediately increased minimum bond rates and 
effected other changes. The Governor signed House bill 66 (H.B. 66) on 
March 22, 2013, which provided substantive changes to Kentucky's 
bonding program. H.B. 66 established a bonding program that provides, 
among other things, creation of a new land reclamation bond-pool for 
members; creation of a commission to oversee the pool; changes 
regarding permit-specific bonds; transition provisions for members and 
assets of the old bond pool; and clarification that the pool shall not 
be used for long-term treatment of substandard water discharges and 
subsidence. The Kentucky Revised Statutes (KRSs), which codify the 
legislative provisions of H.B. 66, and the permanent KARs to administer 
the provisions, were later submitted.
    This amendment includes: 7 emergency regulations; 11 repealed KRSs 
related to the old bond pool (VBP); 8 new KRSs; 3 amended KRSs; 3 
repealed permanent KARs; 4 new permanent KARs; and 4 amended KARs.
    Through the action of the Governor and the legislative action by 
the Assembly, Kentucky changed the bonding program in the following 
manner by: (1) Increasing bonding rates for ABS permit-specific bonds 
by approximately 60%; (2) requiring all permittees to participate in 
the Kentucky Reclamation Guaranty Fund (KRGF) at the time of 
conversion, unless they opt-out; (3) eliminating the classification 
standards and associated fees for bond pool members that were used 
under the old system; (4) establishing new membership and production 
fees; (5) requiring the Kentucky Reclamation Guaranty Fund Commission 
(KRGFC) to make recommendations to the cabinet regarding the KRGF's 
solvency; (6) increasing the supplemental assurance amounts for KRGF 
members; (7) requiring actuarial reviews annually for three years, then 
bi-annually instead of every three years as previously required; (8) 
changing the manner in which bonds are released for old VBP members; 
(9) requiring bond to be posted for the treatment of long-term 
treatment pollutional discharges for estimated costs covering 20 years; 
and (10) implementing other bonding changes.
    Descriptions of the substantive changes to the Kentucky program

[[Page 3950]]

resulting in the changes above are noted in the Findings section that 
follows.

III. OSMRE's Findings

    Section 509(a), along with 30 CFR 800.14(b) ``require that the 
amount of performance bond shall be sufficient to assure the completion 
of the reclamation plan if the work had to be performed by the 
regulatory authority in the event of forfeiture.'' Section 509(c), 
along with 30 CFR 800.11(e), provides that an alternative system to 
full-cost performance bond may be approved if it will achieve the 
purposes of the bonding program. To gain approval, (1) a bonding 
program must 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) must provide a substantial 
economic incentive for the permittee to comply with all reclamation 
provisions. We reviewed the emergency KARs; statutory language of H.B. 
66, its corresponding KRSs; and permanent KARs collectively to 
determine whether or not the bonding program/system as a whole is able 
to meet reclamation obligations. Below are our findings of the 
substantive changes to Kentucky's bonding program.

A. Kentucky Emergency Administrative Regulations (KARs)

    Seven emergency regulations were submitted to us for approval. Two 
of the emergency regulations repealed other administrative regulations 
(405 KAR 10:011E and 405 KAR 10:201E); four created new regulations 
(405 KAR 10:015E, 405 KAR 10:070E, 405 KAR 10:080E, and 405 KAR 
10:090E); and one amended an already existing administrative regulation 
(405 KAR 10:001). Three of these emergency regulations were later 
replaced by nearly identical permanent (ordinary) regulations (405 KAR 
10:001, 405 KAR 10:015, and 405 KAR 10:090). We are not issuing 
findings on the three emergency provisions that were replaced because 
the emergency provisions are no longer in place, and we are making a 
finding on the nearly identical permanent ones. We are issuing findings 
on the other four emergency regulations because they involved the 
repeal or relocation of administrative regulations or they involved 
matters related to the transition to the new bonding system.
    The following four emergency regulations remove or relocate certain 
administrative regulations due to changes in the bonding regulations:
    KAR 10:011E, Repeal of 405 KAR 10:010, and KAR 10:020; 405 KAR 
10:010, General requirements for performance bond and liability 
insurance (sections 1 through 5) and 405 KAR 10:020, Amount and 
duration of performance bond (sections 1 through 9): The emergency 
regulation repealed these performance bond and liability insurance 
regulations and the amount and duration of the performance bond 
regulations and relocated them into the new administrative regulation 
at 10:015, with the exception of section 4 of 405 KAR 10:010, which was 
relocated to 405 KAR 10:030.
    OSMRE Finding: We find that the relocation of provisions from one 
regulation to another is a non-substantive change. The change documents 
the relocation of these provisions into the new program; therefore, 405 
KAR 10:011E is approved.
    KAR 10:201E, Repeal of 10:200, Kentucky bond pool (sections 1 
through 9): The emergency regulation repealed the VBP regulations from 
Kentucky's program.
    OSMRE Finding: Because we are approving, with exceptions, the new 
bonding system amendments proposed by Kentucky, we find that the repeal 
of the VBP regulations is not inconsistent with SMCRA or the Federal 
regulations. Therefore, 405 KAR 10:201E is hereby approved.
    The following two emergency regulations specifically addressed 
matters related to the transition from the old bonding system to the 
new one and were not entirely duplicated in the permanent 
administrative regulations:
    405 KAR 10.070E, Kentucky Reclamation Guaranty Fund (sections 1 
through 6): In addition to establishing the new bond pool entitled the 
KRGF and creating the KRGFC, this regulation addressed the initial 
capitalization of the KRGF (transfer of assets and one-time 
assessments) and the terms and conditions in which these assessments 
were paid. It also provided the terms in which former VBP members 
report coal mined and sold until and after January 1, 2014. The 
following provisions were not included in the permanent regulations at 
405 KAR 10:070: Section 2, Initial Capitalization; section 3(3) related 
to member production records and reporting; and section 6(b) related to 
a required monthly production report.
    OSMRE Finding: The portions of this regulation that were 
promulgated in emergency format only, and were not converted to 
permanent regulations at 405 KAR 10:070, addressed the capitalization 
of a bond pool and forms required to document production under the old 
system and have no direct Federal counterparts. We find that these 
provisions are not inconsistent with section 509(c) of SMCRA or with 
the Federal regulations at Sec.  800.11(e), and are hereby approved.
    405 KAR 10:080E: Full-cost bonding (sections 1 through 4): In 
addition to allowing permittees to elect not to participate in the KRGF 
(opt-out) and to provide full-cost reclamation bonds for coal mine 
surface disturbances, this regulation also included provisions 
pertaining to members with permits issued prior to July 1, 2013. It 
provided the terms and conditions in which the permittee would make 
such election. This provision was not included in the permanent 
regulation at 405 KAR 10:080.
    OSMRE Finding: This regulation provided that permittees make an 
election regarding participation in the KRGF by a specific date. This 
was a one-time event and facilitated the transition to the new bonding 
system. We find there are no direct Federal counterparts. However, the 
provisions are not inconsistent with section 509(c) of SMCRA or with 
the Federal regulations at Sec.  800.11(e), and are hereby approved.

B. Legislative Action--House Bill 66 and Kentucky Revised Statutes 
(KRSs)

    On March 11, 2013, H.B. 66 was passed by the legislature and 
enacted on March 22, 2013, when it was signed by the Governor. H.B. 66 
included 14 sections and resulted in the following: 8 KRSs being added; 
3 KRSs being amended; and 11 KRSs being repealed as described below:
    H.B. 66 Section 1--KRS 350.500. Definitions for KRS 350.500 to 
350.521: This is a new chapter that provides the H.B. 66 definitions of 
actuarial soundness, date of the establishment of the new KRGF, the 
KRGFC, and VBP fund.
    OSMRE Finding: There are no comparable Federal regulations that 
define actuarial soundness, prescribe an effective date of a bond pool 
or fund, or establish a commission to govern a bond pool. However, the 
establishment of a bond pool is consistent with the provisions of 30 
CFR 800.11(e). Therefore, we find that the proposed definitions are not 
inconsistent with section 509(c) of SMCRA and with the Federal 
regulations at 30 CFR 800.11(e), and they are hereby approved.
    H.B. 66 Section 2--KRS 350.503. Kentucky reclamation guaranty fund: 
This is a new chapter that establishes the KRGF, which is assigned to 
the cabinet. The KRGF is an interest-bearing reclamation account 
designed to cover the excess costs of reclamation for coal mining sites 
when the permit-specific performance bond is inadequate. This chapter 
does not apply to permits

[[Page 3951]]

forfeited prior to January 1, 2014, except for obligations that may 
arise from the forfeiture of bonds prior to that date which were 
secured by the VBP. Funds are also used to compensate the cabinet for 
costs incurred in performance of the following duties: Administering 
the fund; procuring audits and actuarial studies; and operating and 
necessary legal expenses of the KRGFC. The KRGF cannot be used for the 
long-term treatment of substandard water discharges or to repair 
subsidence damage and is exempt from the requirements applicable to 
insurers.
    OSMRE Finding: There is no counterpart in SMCRA or the Federal 
regulations that establishes a bond fund system such as the one 
established under H.B. 66. However, as we noted previously, section 
509(c) of SMCRA and 30 CFR 800.11(e) provide for the establishment of 
an ABS if the system (1) assures the regulatory authority will have 
available sufficient money to complete the reclamation plan for any 
areas in default at any time and (2) provides an economic incentive for 
the permittee to comply with all reclamation provisions. Because the 
changes to Kentucky's bonding program noted above have only recently 
been established, we have no new data to suggest that there will not be 
sufficient funding to address land reclamation obligations or that the 
KRGFC or the cabinet will not fulfill their obligation to take measures 
to ensure the solvency of the KRGF. Kentucky's system provides an 
economic incentive to reclaim in KRS 350.130(3) because it requires the 
submission of permit-specific performance bonds and provides that no 
person shall be eligible to receive another permit or begin another 
operation until the person has reimbursed the KRGF for any money from 
the KRGF that was used to reclaim that person's operation. Therefore, 
we are approving the changes to the program because they establish an 
ABS that combines the use of permit-specific bonds and a bond pool to 
address land reclamation needs.
    We note that the KRGF restricts its ABS coverage to land 
reclamation costs and is not intended to cover the cost of treating 
pollutional discharges. The cost of treating pollutional discharges 
needs to be adequately addressed, e.g., covered under full-cost, site-
specific bonds or an alternative financial mechanism that generates an 
income stream capable of addressing these discharges in perpetuity. 
Kentucky proposes to require operators to post site-specific bonds to 
cover the costs of long-term treatment of substandard water discharges. 
Our finding on this proposal is included in findings of ``C. Kentucky 
Administration Regulations (KARs), Section 8 of 405 KAR 10:015.''
    H.B. 66 Section 3--KRS 350.506. Reclamation Guaranty Fund 
Commission--Membership--Bylaws--Meetings--Conflicts of Interest--
Applicability of Executive Branch Code of Ethics: This is a new section 
that creates the KRGFC that is attached to the cabinet. This chapter 
provides the composition of the KRGFC membership, the terms and 
conditions of membership appointments, and the establishment of bylaws, 
official domicile, meeting frequency, member stipend, and attendance 
requirements. Further, it addresses limits on direct or indirect 
financial interests of the members, membership immunity from civil or 
criminal proceedings, and ethics terms.
    OSMRE Finding: There are no comparable Federal regulations that 
address the creation or management of bond pools. However, there is 
nothing in these provisions that is inconsistent with section 509(c) of 
SMCRA or with the Federal regulations at 30 CFR 800.11(e), and they are 
hereby approved.
    H.B. 66 Section 4--KRS 350.509. Duties of commission: This is a new 
chapter that outlines the responsibilities of the KRGFC, which include 
reviewing, recommending, and promulgating regulations necessary to 
perform the following duties: Monitor and maintain the KRGF, establish 
a structure for processing claims and making payments; establish the 
mechanisms for the review of the viability of the KRGF; set a schedule 
for penalties for late payment or failure to pay fees and assessments, 
review and assign classification of mine types for fee assessments; 
establish a structure for the payment of fees and assessments, 
authorize expenditures from the KRGF, notify the permittees of 
suspension/reinstatement of fees; take action against permittees to 
recover funds if necessary, and conduct investigations and issue 
subpoenas on behalf of the KRGFC to verify reporting, payment, and 
other activities of permittees participating in the fund.
    In addition, the KRGFC is also responsible for employing a 
certified public accountant to perform an annual audit of the KRGF for 
the first five years of the operations of the KRGF, then every two 
years or more frequently as deemed necessary by the KRGFC. The results 
of the audit shall be reported to the KRGFC and the Governor. Also, the 
KRGFC is responsible for employing a qualified actuary to perform an 
actuarial study annually for the first three years of the operations of 
the KRGF. Thereafter, the KRGFC must have actuarial studies performed 
every two years or more frequently as deemed necessary by the KRGFC. 
Results of these studies must be reported to the KRGFC and to the 
Governor. The KRGFC is responsible to report to the Governor and the 
Interim Joint Committee on Natural Resources and Environment no later 
than December 31 of each year as to the financial status of the KRGFC.
    OSMRE Finding: There are no comparable Federal regulations that 
address the management of bond pools. With the exception of one 
provision discussed below, there is nothing in these provisions that is 
inconsistent with section 509(c) of SMCRA or with the Federal 
regulations at 30 CFR 800.11(e), and they are hereby approved.
    We are approving the requirement to conduct annual actuarial 
studies for the first three years of the implementation of the KRGF. 
However, as proposed, beginning in year four, actuarial studies would 
be required only bi-annually or more frequently as deemed necessary by 
the commission. Given the reliance upon the actuarial study for the 
adjustment of fee rates (established in Section 7), the immaturity of 
the KRGF, the provisions of the bonding program that have not been 
approved, and the rapidly changing nature of the current coal mining 
industry, we believe it is premature to approve a two-year lapse 
between actuarial evaluations. We are concerned that a two-year time 
period may not sufficiently ensure that needed adjustments to maintain 
the solvency of the KRGF are recommended and implemented in a timely 
matter. Therefore, we are deferring our decision on the bi-annual 
review provision of H.B. 66 until such time as we are able to evaluate 
the stability of the KRGF over its initial years of implementation. 
After our receipt and review of the actuarial study based upon the 
third full year of operation of the fund, we will reconsider our 
deferral and determine whether to: (1) Approve the bi-annual actuarial 
study requirement; (2) require that the studies continue to be 
performed annually; or (3) take other appropriate action.
    H.B. 66 Section 5--KRS 350.512. Office of the Reclamation Guaranty 
Fund--Duties of executive director: This is a new chapter that 
establishes an Office of the Reclamation Guaranty Fund (ORGF), appoints 
an executive director to manage its affairs, and describes the 
responsibilities of the executive director. The responsibilities of the 
executive director include collecting and depositing all fees

[[Page 3952]]

submitted by permittees into the fund; assessing permit eligibility of 
permittees for late payment or nonpayment of fees; compiling 
information about permittees for use by the commission in assigning or 
revising classifications and fees; paying monies out of the fund as 
authorized; reporting to the commission on the status of the fund and 
the activities of the fund's executive director; and performing other 
administrative functions as necessary.
    OSMRE Finding: There are no comparable Federal regulations that 
address the management of bond pools. However, there is nothing in 
these provisions that is inconsistent with section 509(c) of SMCRA or 
with the Federal regulations at 30 CFR 800.11(e) and they are hereby 
approved.
    H.B. 66 Section 6--KRS 350.515. Mandatory participation in fund--
Initial capitalization--One-time assessments--Full-cost bond in lieu of 
participation: This is a new chapter that mandates that all surface 
coal mining permittees be participants in the KRGF, unless the 
permittee elects to provide full-cost bond. Member entities are given 
the option to provide financial assurance in one of two ways: (1) 
Provide full-cost bonds based on a reclamation cost estimate that 
reflects potential reclamation costs to the cabinet; or (2) participate 
in the KRGF, which includes assessment of fees noted in KRS 350.518 
below.
    In addition, this chapter also provides for the initial 
capitalization of the KRGF consisting of the following sources of 
funds: (1) Transfer of the assets and liabilities of the VBP fund; (2) 
a one-time start-up assessment for all current permittees as of July 1, 
2013, in the amount of $1,500; and (3) a one-time $10 per active 
permitted acre assessment. Entities entering the KRGF after July 1, 
2013, must pay a one-time assessment of $10,000 to the fund. No 
individual permit may be issued until the one-time assessments are 
paid. Members of the former VBP are exempt from the one-time start-up 
assessment and active permitted acre assessment. If an applicant opts 
out and elects to provide a full-cost bond, the applicant shall not be 
subject to these assessments.
    OSMRE Finding: Maintaining adequate resources is essential to the 
success and compliance of any bond pool. The transfer of funds from the 
existing bond pool and the assessment of start-up fees will assist in 
the initial capitalization of a new bond pool. Provided the permits 
previously covered by the transferred funds are adequately covered by 
the new pool, there is nothing in these provisions that is inconsistent 
with section 509(c) of SMCRA or with the Federal regulations at 30 CFR 
800.11(e), and they are hereby approved.
    H.B. 66 Section 7--KRS 350.518. Permittee to submit permit-specific 
bond under KRS 350.060(11)--Tonnage fees--Assignment of mine type 
classification--inclusion of future permits of existing 
classification--Inclusion of future permits of existing voluntary bond 
pool fund members--Permit-specific penal bond--Administrative 
regulations--Suspension of permit for arrearage in fees--Distribution 
of penalties collected under KRS 350.990(1)--Rights and remedies: This 
is a new chapter that provides the following provisions related to the 
KRGF that apply to each member permittee: (1) Each member must submit a 
permit-specific bond; and (2) each member must pay a tonnage fee 
(production fee) of $.0757 per ton for surface coal mining operations 
(including auger and highwall mining) and $.0357 per ton for 
underground coal mining. If the permit consists of a combination of 
surface and underground mining operations, the operator must pay a fee 
in accordance with the predominant method of coal extraction.
    This chapter also contains special provisions for permits that were 
subject to the VBP as follows: (1) These permits are excluded from the 
one-time start-up assessment/fee; (2) these permits are subject to the 
new tonnage fees, instead of the tonnage fees which had been previously 
established (prior to July 1, 2013); (3) these permits will continue to 
receive subsidization of the reclamation bonding authorized under these 
new statutes and new permanent regulations; and (4) the KRGF will 
continue to provide coverage for existing bonds previously issued under 
the VBP. This chapter also provides the criteria that members of the 
VBP as of July 1, 2013, must meet in order to be included in the KRGF. 
It also specifies a maximum allowable increase in the total amount of 
bonds issued to any one member of the VBP. This chapter provides that 
administrative regulations will be promulgated by the KRGFC to address 
the reporting and payment of fees (see administrative regulations 
section that follows). It also provides that a permit will be suspended 
if the permittee is in arrearage in the payment of any fees and sets 
out the remedies to address the suspension. It also provides the manner 
in which penalties collected shall be deposited and applied.
    In addition, if an entity was not a participant in the VBP as of 
March 22, 2013, a permit may be considered for inclusion in the VBP if 
the entity and entity's owners can meet eligibility standards 
established in permanent regulations promulgated by the KRGFC.
    These provisions make clear that the KRGFC must make changes to the 
rates set forth in these sections and other sections in an amount 
sufficient to maintain actuarial soundness of the fund in accordance 
with the actuarial studies performed.
    OSMRE Finding: We find that these provisions are consistent with 
section 509(c) of SMCRA and with the Federal regulations at 30 CFR 
800.11, and are hereby approved. However, subsection (4) requires some 
further explanation. It states that:

    The increase in the total amount of bonds issued to any one (1) 
member of the voluntary bond pool under subsection (3) of this 
section shall not exceed twenty-five (25%) of the greater of:
    (a) The member's aggregate amount of bonds in force and issued 
by the voluntary bond pool as of March 22, 2013; or
    (b) The total of that member's aggregate amount of bonds in 
force and issued by the voluntary bond pool as of March 22, 2013, 
plus fifty-five percent (55%) of that total.

    We note that paragraph (b) will always result in a total greater 
than paragraph (a) and, therefore, renders the provision at paragraph 
(a) meaningless. Nevertheless, the introductory paragraph, coupled with 
paragraph (b), is consistent with section 509(c) of SMCRA and the 
Federal regulations at 30 CFR 800.11, and they are therefore approved.
    H.B. 66 Section 8--KRS 350.521. Forfeiture of bonds for permits 
covered by fund--Use of additional moneys when bond insufficient to 
cover estimated reclamation cost: This is a new chapter that provides 
that bonds for permits covered by the fund forfeited after January 1, 
2014, must be placed in the KRGF. It also provides that in the event 
that a forfeited bond and the cost estimate prepared by the cabinet 
indicates the bond is insufficient to reclaim the permit to the 
requirements of KRS Chapter 350, any outstanding permit-specific 
performance bond for reclamation on the forfeited permit must be used 
first before any additional monies necessary to reclaim the permit area 
are approved by the cabinet and withdrawn from available funds in the 
KRGF. It also provides the manner in which the request from the cabinet 
and transfer shall occur, and provides that the commission, its 
members, and employees must not be named a party to any forfeiture 
action.
    OSMRE Finding: We find that this provision sets forth a procedure 
that is typical of an ABS that employs both

[[Page 3953]]

site-specific performance bonds and a bond pool. We find that it is 
consistent with section 509(c) of SMCRA and with the Federal 
regulations at 30 CFR 800.11(e) and is hereby approved.
    H.B. 66 Section 9--KRS 12.020. Enumeration of departments, program 
cabinets, and administrative bodies: This chapter is amended to add the 
ORGF within the Department of Natural Resources (DNR) to the list of 
departments, program cabinets and their departments, and the respective 
major bodies.
    OSMRE Finding: This change was included in H.B. 66, but the revised 
statute was not submitted for approval. We find this change does not 
require our approval because it is not part of the State regulatory 
program.
    H.B. 66 Section 10--KRS 350.595. Application for inclusion under 
Abandoned Mine Land Enhancement Program--Coverage under Kentucky 
reclamation guaranty fund: This chapter is amended to provide that an 
applicant who desires to remine property which is classified as 
abandoned mine land under KRS 350.560, may apply to the KRGFC instead 
of the VBP Commission for authorization to use bond pool funds under 
the Abandoned Mine Land Enhancement Program. It also adds appropriate 
references or deletes references related to the VBP.
    OSMRE Finding: This change is needed to acknowledge the dissolution 
of the old VBP commission and its replacement by the KRGFC. We find 
that it is not inconsistent with SMCRA or the Federal regulations and 
is hereby approved.
    H.B. 66 Section 11--KRS 350.990. Penalties: This chapter is amended 
to require that civil penalty monies assessed pursuant to this chapter 
be deposited in the State Treasury, except those penalty monies 
collected in excess of $800,000 in any fiscal year. Fifty percent of 
the excess monies are required to be deposited in the KRGF (rather than 
the VBP) and fifty percent in a supplemental fund. The supplemental 
fund is comprised of the interest from the deposit of forfeited bonds 
and may be used to supplement forfeited bonds that are inadequate to 
complete reclamation plans. It removes the $16 million base amount 
below which the VBP could not be allowed to fall to ensure solvency of 
the fund.
    OSMRE Finding: This change identifies the manner in which funds 
collected from civil penalties must be distributed. The $16 million 
base amount for the VBP is no longer required because the VBP bonding 
system was replaced. Under the KRGF, required actuarial studies and the 
KRGFC will establish the financial needs of the KRGF to ensure the 
solvency of the fund and assure sufficient money is available to 
complete the reclamation plan for any areas covered by the KRGF which 
may be in default at any time. As such, it is not required to establish 
an amount, such as $16 million, as a floor for the KRGF. There is 
nothing in these provisions that is inconsistent with section 509(c) of 
SMCRA or with the Federal regulations at 30 CFR 800.11(e), and they are 
approved.
    H.B. 66 Section 12--KRS 350.700 to 350.755: The following chapters 
are repealed due to the abolishment of the VBP:

350.700. Bond pool fund established;
350.705. Bond Pool Commission;
350.710. Powers of the Commission;
350.720. Bond Pool (Criteria compliance records);
350.725. Membership fee--tonnage fee;
350.730. Tonnage fee suspension or reinstatement;
350.735. Permit-specific penal bond;
350.740. Permit issuance;
350.745. Payments from fund for reclamation;
350.750. Revocation of membership in bond pool; and
350.755. Grounds for refusal of permit.

    OSMRE Finding: Removal of the identified chapters involving the VBP 
is consistent with the newly established KRGF. However, it is our 
understanding that, consistent with the title, H.B. 66 was intended to 
also repeal KRS 350.715, Pool administrator. Because the repeal of KRS 
350.715 was not specifically submitted for approval, this chapter 
remains in effect and cannot be removed until the repeal is submitted 
for approval.
    H.B. 66 Section 13--(no corresponding KRS chapter because a revised 
statute is not necessary): This section provides that the assets and 
liabilities of the VBP be immediately transferred to the KRGF. Any 
records, files and documents associated with the activities of the VBP 
must also be transferred. The affairs of the VBP must be wound up, and 
the cabinet will have disposition over placement or transfer of any 
personnel of the VBP. No existing contract shall be impaired.
    OSMRE Finding: This provision involves the initial capitalization 
of the new bonding system and administratively and financially 
concludes the old bonding system. We find that this transfer of funds 
and records is needed for establishment and proper implementation of 
the KRGF, and that it is not inconsistent with section 509(c) of SMCRA 
or with the Federal regulations at 30 CFR 800.11(e). It is hereby 
approved.
    H.B. 66 Section 14--(no corresponding KRS chapter because a revised 
statute is not necessary): This section provides for the immediate 
implementation of the provisions of the bill.
    OSMRE Findings: We find that section 14 is not inconsistent with 
SMCRA or the Federal regulations and is therefore approved.

C. Kentucky Administrative Regulations (KARs)

    This portion of the program amendment includes additions and 
changes to current administrative regulations addressing Kentucky's 
bonding program. These regulations involve the repeal of three 
regulations; the addition of four new regulations; and amendments to 
four regulations as described below:
    405 KAR 10:001. Definitions for 405 KAR Chapter 10 (section 1): 
This regulation is amended to add the definition of the following 
terms: Acquisition; active acre; actuarial soundness; dormancy fee; 
coal mined and sold; final disposition; full-cost bonding; Kentucky 
Reclamation Guaranty Fund; Office of the Reclamation Guaranty Fund 
(ORGF); opt-out; member, non-production fee; and acquisition as it 
relates to criteria for identifying land historically used for 
cropland. The definitions of bond pool, bond pool administrator, and 
bond pool commission have been deleted. Bond pool and bond pool 
administrator have been replaced with definitions of KRGF and the ORGF.
    OSMRE Finding: There are no comparable Federal definitions for the 
definitions mentioned above. These changes are not inconsistent with 
section 509 of SMCRA and with the Federal regulations at 30 CFR part 
800 and are hereby approved.
    405 KAR 10:015, General bonding provisions (sections 1 through 12): 
This is a new regulation that combines two repealed sections (405 KAR 
10:010 and 405 KAR 10:020 mentioned above as part of the Emergency 
Regulations) and incorporates parts of 405 KAR 10:030 (addressed 
below). It consolidates into one regulation all current existing 
bonding criteria, types of bonds, bonding methods, terms and conditions 
of bonds, and new calculation protocols. It also contains a protocol 
for bond calculation for demolition and disposal costs for materials 
used in mining operations at preparation plants. In addition, it 
provides for the calculation of costs associated with mine sites that 
have been identified as producers of

[[Page 3954]]

substandard effluent discharges requiring long-term treatment. For 
clarity, we note that Section 1, Bonding Requirements; Section 4, 
Bonding Methods; Section 5, Substitution of Bonds; Section 9, Period of 
Liability; and Section 10, Adjustment of Amount, were unaffected by 
these changes. Substantive changes are included below.
Section 2, Terms and Conditions of Performance Bond
    Section 2(9) provides that for any existing permits with permit-
specific bonds posted by the VBP members, prior to the establishment of 
the KRGF, the permit-specific bond would be released in its entirety 
upon successful completion of Phase I bond release requirements, while 
permit-specific bonds posted by these members on new permits after the 
establishment of the KRGF, will be released in equal percentages at 
each reclamation phase, which is different than the release provisions 
for full-cost bond permits. The Phase 1 bond release for VBP members' 
permit-specific bond was formerly included in the now repealed statute 
at KRS 350.735(3). We announced our approval of this provision, along 
with the other statutory portions of the VBP, in the July 18, 1986, 
Federal Register document. (51 FR 26002).
    OSMRE Finding: We find the phase-by-phase release of equal portions 
of the new permit-specific bonds posted after the establishment of the 
KRGF ensures that two-thirds of the permit-specific bond, coupled with 
any moneys needed from the KRGF, will remain available for reclamation 
after Phase I bond release. These provisions are not inconsistent with 
section 519(c) of SMCRA and with the Federal regulations at 30 CFR 
800.40(c), and are hereby approved. Inasmuch as permit-specific bonds 
in existence prior to the creation of the KRGF were posted according to 
the approved program at the time, the grandfather provision maintaining 
the release of these bonds in their entirety, upon successful 
completion of Phase I bond release requirements, remains approved.
Section 3, Types of Performance Bonds
    Section 3(2)(c) adds to the list of approvable bonds the following 
types of bonds: Those filed pursuant to the provisions of the KRGF; 
those filed by VBP members; or a combination of both. Section 3(3) 
provides that permit-specific bonds associated with the VBP prior to 
its repeal are deemed valid and convey the same legal rights as bonds 
issued by the KRGF.
    OSMRE Finding: The types of bonds allowed under section 3(2)(c) are 
not inconsistent with the Federal regulations since bond pools and 
their related bonds are permissible under 30 CFR 800.11(e). With regard 
to section 3(3), we find that because the bonds approved under the VBP 
were valid when issued, Kentucky may continue to recognize their 
validity after the creation of the KRGF. We are approving section 3(3) 
because it is consistent with section 509 of SMCRA and with the Federal 
regulations at 30 CFR part 800.
Section 6, Determination of Bond Amounts
    Sections (6)(1) and (6)(4) make clear, by cross-references, that 
the new provision at 405 KAR 10:080, which is being approved in this 
decision and addresses full-cost bonding estimates prepared by 
permittees, does not apply to the determination of bond amounts for 
KRGF participants.
    OSMRE Finding: These cross-references are not inconsistent with 
SMCRA and the Federal regulations at 30 CFR 800.11 and 800.14 and are 
hereby approved.
    Section 6(2) allows the cabinet to use the reclamation costs 
submitted in the permit application to establish the bond amount 
required, if those costs are higher than the reclamation costs 
calculated by the cabinet.
    OSMRE Finding: While there is no direct Federal counterpart to this 
revision, erring on the side of the higher bond amount calculation is 
consistent with the Federal requirements at 30 CFR 800.14(a), which 
governs the determination of the bond amount. Therefore, section 6(2) 
is hereby approved.
    Section 6(3) requires the cabinet to review bond amounts 
established in the regulations at a minimum of every two years to 
determine if those amounts are adequate after consideration of the 
impacts of inflation and increases in reclamation costs.
    OSMRE Finding: This revision is no less effective than the Federal 
regulation at 30 CFR 800.15(a), which allows the regulatory authority 
to specify periodic times or to set a schedule for reevaluating and 
adjusting the bond amount. Therefore, section 6(3) is hereby approved.
    Section 6(4) requires full-cost bonding participants to provide a 
cost estimate that reflects the cost of reclamation to the cabinet in 
accordance with full-cost bonding regulations at section 405 KAR 
10:080.
    OSMRE Finding: We find that this provision is consistent with the 
Federal regulations at 30 CFR 800.14, and is hereby approved.
Section 7, Minimum Bond Amount
    Section 7 increases minimum bond amounts to $75,000 for the entire 
surface area under one permit, $75,000 per increment for incrementally 
bonded permits, $50,000 for a permit or increment operating on 
previously mined areas, and $10,000 for underground mines that have 
only underground operations (no surface facilities).
    OSMRE Finding: We find the proposed changes at 405 KAR 10:015 
section 7 are no less effective than the Federal requirements at 30 CFR 
800.14(b), which mandate a minimum bond amount of $10,000 for the 
entire area under one permit, and are hereby approved.
Section 8, Bonding Rate of Additional Areas
    Section 8 establishes new, increased bond amounts that vary 
depending upon the type of area being affected (i.e., coal refuse area, 
preparation plants, and mining areas) as follows:
     $2,500 per acre and each fraction thereof for coal haul 
roads, other mine access roads, and mine management areas.
     $7,500 per acre and each fraction thereof for refuse 
disposal areas.
     $10,000 per acre and each fraction thereof for an 
embankment sediment control pond. Each pond must be measured separately 
if the pond is located off-bench downstream of the proposed mining or 
storage area. The cabinet also may apply this rate to partial 
embankment structures as deemed necessary to meet the requirements of 
section 6(1) of 405 KAR 10:015.
     $3,500 per acre and each fraction thereof for coal 
preparation plants. In addition, the bond amount must include the costs 
associated with demolition and disposal of concrete, masonry, steel, 
timber, and other materials associated with surface coal mining and 
reclamation operations.
     $2,000 per acre and each fraction thereof for operations 
on previously mined areas.
     $3,500 per acre and each fraction thereof for all areas 
not otherwise addressed in 405 KAR 10:015 section 8.
    OSMRE Findings: Because all of the changes, summarized above to 
bonding rates, identified in sections 8(1) through 8(6), constitute 
increases in bond amounts, they are not inconsistent with the Federal 
requirements at 30 CFR 800.14, which govern the determination

[[Page 3955]]

of bond amounts, and are hereby approved.
    However, by approving the sections identified above, we do not 
conclude, in this decision, that Kentucky has satisfied all of the 
concerns we set forth in the May 1, 2012, letter issued pursuant to 30 
CFR 733.12(b) with regard to the sufficiency of the bond amounts. That 
determination will be made subsequent to this decision during review of 
the solvency of the revised bonding system.
    Section 8(7)(a) provides that for permits with substandard drainage 
that require long-term treatment, the cabinet must calculate and the 
permittee must post an additional bond amount based on the annual 
treatment cost provided by the permittee, multiplied by 20 years. 
Section (8)(7)(b) provides that the cost estimate is subject to the 
verification and acceptance by the cabinet. Kentucky may use its own 
estimate for annual treatment costs if it cannot verify the accuracy of 
the permittee's estimate. Section (8)(7)(c), provides that in lieu of 
posting this additional bond amount, the permittee may submit a 
satisfactory reclamation and remediation plan for the areas producing 
the substandard drainage.
    Both SMCRA and the Federal regulations require that operators post 
bonds that are sufficient in amount to guarantee the completion of all 
reclamation, if that reclamation must be completed by the regulatory 
authority. See, for example, 30 CFR 800.13(a)(1), which states that 
performance bond liability must be for the duration of the surface coal 
mining and reclamation operation and for a period which is equal to the 
operator's period of extended responsibility for successful 
revegetation provided in 30 CFR 816.116/817.116 or until achievement of 
the reclamation requirements of the Act, regulatory programs, and 
permit, whichever is later. A permit may not be issued if, after 
sufficient study, analysis, and planning, water pollution is 
anticipated. Abatement of any unanticipated water pollution is an 
element of reclamation, and the treatment obligation may extend to 
perpetuity. Neither SMCRA nor its implementing regulations allow 
regulatory authorities to set arbitrary time limits as multipliers for 
calculating bond amounts. Kentucky has not demonstrated that a 20-year 
multiplier will result in an adequate bond. As such, we find 405 KAR 
10:015 8(7)(a) is less stringent than section 509 of SMCRA, 30 U.S.C. 
1259, and less effective than the Federal regulations at 30 CFR part 
800, and we are not approving it. Because section 8(7)(b) refers to the 
water treatment calculation in 8(7)(a) that is not being approved, we 
are also not approving 8(7)(b).
    In addition, the allowance of a land reclamation-based remediation 
plan in lieu of posting an adequate bond for long-term pollutional 
drainage treatment is unacceptable. Neither SMCRA nor its implementing 
regulations provide any exceptions to the requirement to post a bond 
that is fully adequate to cover the cost of reclamation, including 
water treatment.
    We have approved other financial mechanisms under 30 CFR 800.11(e) 
that are capable of generating an income stream to address 
unanticipated discharges in perpetuity, e.g., treatment trusts or 
annuities. Treatment trusts and annuities are types of financial 
instruments capable of generating revenue for the purpose of 
maintaining treatment for these discharges. See, for example, Federal 
Register document dated March 2, 2007, addressing the approval of 
Tennessee's use of treatment trusts. (72 FR 9616). We recommend that 
Kentucky avail itself of these alternative financial mechanisms to 
ensure adequate funds are available to fully cover the cost of 
reclamation. Because this provision at 405 KAR 10:015 8(7)(c) is less 
stringent than section 509 of SMCRA, and less effective than the 
Federal regulations at 30 CFR part 800, we are not approving it.
Section 11, Supplemental Assurance
    Section 11 includes the supplemental assurance requirements 
previously located at 405 KAR 16:020 (see summary of 16:020 in D. 
Kentucky Administrative Regulations Affected by the Bonding Regulations 
below) and increases the supplemental assurance amount from $50,000 to 
$150,000.
    OSMRE Finding: Supplemental assurance funds are required when 
alternative distance limits or additional pits are approved. While 
these provisions have no Federal counterparts, we find that, because 
the increases in supplemental assurance amounts provide additional 
assurances that reclamation will be completed, the changes are not 
inconsistent with the Federal regulations at 30 CFR part 800, and are 
hereby approved.
    405 KAR 10:070. Kentucky reclamation guaranty fund (sections 1 
through 5): This is a new regulation and provides information related 
to the operation and sources of revenue for the KRGF, classification of 
permits, reporting and payment of fees, and penalties. Permittees will 
automatically be considered participants in the KRGF unless they 
affirmatively chose to opt-out of the KRGF and post full cost 
performance bonds. These regulations require that permittees comply 
with reporting requirements, maintain production records, provide 
initial assessments, pay fees, comply with penalty provisions, and 
complete and submit required forms.
    OSMRE Finding: We find that this provision sets forth components 
that are needed for the orderly establishment, monitoring, maintenance, 
and enforcement, where necessary, of an ABS. Therefore, we further find 
this provision to be consistent with section 509(c) of SMCRA and with 
the Federal regulations at 30 CFR 800.11(e), and is hereby approved.
    We note however, that the establishment of a bond pool, 
particularly in a declining coal market, brings inherent risks to 
participating permittees and to Kentucky. As the number of bond pool 
members and the amount of coal produced in Kentucky declines, the 
production fees placed on coal being produced will need to rise 
correspondingly to maintain a financially sound and stable bond pool. 
By exercising its discretion to establish this bond pool, Kentucky is 
accepting these risks.
    405 KAR 10:080. Full-cost bonding (sections 1 through 4): This is a 
new regulation and provides that members have the option to provide 
full-cost bonds in lieu of maintaining membership in the KRGF (i.e., 
they may opt-out of the KRGF) and the manner in which a permittee shall 
make such declaration. These sections provide for the calculation of 
bonding estimates, the forms required to submit such estimates, the 
requirement for a registered professional engineer to certify 
estimates, and the requirement to submit a bond once the reclamation 
estimate has been accepted. A member with permits issued prior to July 
1, 2013, that has made the decision to opt-out is required to post 
full-cost reclamation bonds with the Department before April 30, 2014, 
on all permits held by the member.
    OSMRE Finding: This regulation is not inconsistent with SMCRA and 
the Federal regulations at 30 CFR 800.11 and 800.14, and is hereby 
approved.
    405 KAR 10:090. Production fee (section 1): This is a new 
regulation and provides information on production fees, the amount of 
the fees, and the schedule that payments are to be remitted.
    OSMRE Finding: There are no comparable Federal regulations that 
prescribe production fees to be imposed on permittees. We find that 
these changes are not inconsistent with

[[Page 3956]]

SMCRA or its implementing Federal regulations, and are hereby approved.
    We again note that the establishment of a bond pool, particularly 
in a declining coal market, brings inherent risks to participating 
permittees and to Kentucky. As the number of bond pool members and the 
amount of coal produced in Kentucky declines, the production fees 
placed on coal being produced will need to rise correspondingly to 
maintain a financially sound and stable bond pool. By exercising its 
discretion to establish this bond pool, Kentucky is accepting these 
risks.

D. Kentucky Administrative Regulations Affected by the Bonding 
Regulations

    These regulations are affected by the bonding regulations and 
involve the amendment of four regulations as described below:
    405 KAR 8:010. General provisions for permits (Sections 1 through 
26): This regulation has been amended to provide the Division of Mine 
Permits 30 working days after the notice of administrative completeness 
to review minor revisions on full-cost bonding operations. The original 
provisions allowed for 15 working days.
    OSMRE Finding: We find that these changes are not inconsistent with 
SMCRA and the Federal regulations at 30 CFR 774.13(b)(1), and are 
hereby approved.
    405 KAR 10:030. General requirements for liability insurance 
(sections 1 through 3): This regulation has been amended. Prior to this 
revision the regulation included general requirements for the types, 
terms, and conditions of performance bonds and liability insurance. 
With this revision, all references to performance bonds have been 
removed from sections 1 through 3, and now only requirements for 
liability insurance are included (former sections 4 and 5 have been 
renumbered as sections 2 and former section 5 has been moved to section 
3). Requirements for performance bonds have been moved to 405 KAR 
10:015 as noted above. Also, two forms are specified as requirements 
related to liability insurance coverage: (1) Certificate of Liability 
Insurance, and (2) Notice of Cancellation, Nonrenewal or Change of 
Liability Insurance.
    OSMRE Finding: These changes are non-substantive in nature, not 
inconsistent with the Federal requirements at 30 CFR 800.60, and are 
hereby approved.
    405 KAR 12:020. Enumeration of departments, program cabinets, and 
administrative bodies: This section has been amended to include the 
Office of the Reclamation Guaranty Fund to the list of Offices within 
the Department of Natural Resources.
    OSMRE Finding: This change was mentioned in H.B. 66 but does not 
require our approval because it is not part of the State program.
    405 KAR 16:020. Contemporaneous reclamation (sections 1 through 5): 
This regulation has been amended. A new section is included (Section 1, 
Definitions) and defines the term ``completed reclamation.'' 
Subsequently, other sections have been renumbered. Other changes 
include adding references to the new section, 405 KAR 10:015, and 
removing the section involving Supplemental Assurance. Regulatory 
information about supplemental assurance has been relocated to 405 KAR 
10:015, noted above.
    OSMRE Finding: There is no comparable definition within the Federal 
regulations. We find, however, that this section is not inconsistent 
with the Federal regulations and is hereby approved.

IV. Summary and Disposition of Comments

Public Comments

    We asked for public comments on the amendment and received 
responses from three entities: The Surety & Fidelity Association of 
America (TSFAA) on February 21, 2013, (Administrative Record No. KY-
2000-06a); the Appalachian Mountain Advocates (AMA) on March 22, 2013, 
(Administrative Record No. KY-2000-06c); and the Kentucky Coal 
Association (KCA) on March 22, 2013, (Administrative Record No. 2000-
06b) and April 21, 2015, (Administrative Record No 2000-06d). No public 
hearing was requested. The following summarizes the comments that were 
received.
    TSFAA: TSFAA cited financial concerns over the surety bond 
increases listed at 405 KAR 10:015 in that an operator who qualified at 
the lower amount may not be able to qualify at the higher amount. TSFAA 
suggests an increase in the stringency of enforcement activities 
relative to contemporaneous reclamation as required in the statutes and 
regulations. The consequent sizeable bond amounts likely could be 
avoided if the operator engages in contemporaneous reclamation. 
Strengthening enforcement and inspection activities should be the first 
means to addressing the sufficiency of bonds before considering 
increases in bond amounts. TSFAA is concerned that the bond issued may 
also extend to the long-term, if not perpetual, obligation of water 
treatment. TSFAA suggests that Kentucky establish the necessary 
framework whereby a trust could be established in lieu of a bond with 
respect to water treatment obligations.
    OSMRE's Response: Both SMCRA and the Federal regulations require 
that operators post bonds that are sufficient in amount to guarantee 
the completion of all reclamation, if that reclamation must be 
completed by the regulatory authority. Kentucky's amendments were 
submitted, and are being approved, with exceptions, because they are 
designed to improve the bonding program. If surety bonds are not 
available in these higher amounts, operators must obtain one of several 
other forms of bonding. While strengthening enforcement and inspection 
activities may be a laudable goal, its achievement is not a substitute 
for the requirement for a permittee to post an adequate bond.
    The Surety & Fidelity Association of America (TSFAA) also stated:

    Water treatment obligations are a different risk, involving 
funding obligations in perpetuity. This could be a risk not 
susceptible to underwriting. Establishment of a treatment trust that 
would fund the treatment obligations in lieu of a bond would 
facilitate the availability of the bond and put less strain on the 
bond amount to cover the reclamation obligations. We recommend that 
the DNR should establish the necessary framework whereby a trust 
could be established in lieu of a bond with respect to water 
treatment obligations.

    We agree with this comment.
    AMA: The AMA is concerned that long-term pollutional discharges 
would allow permittees to post a bond that would not cover the full 
cost of reclamation. The AMA believes that the amendment to 405 KAR 
10:015 section 8(7)(a) properly mandates additional bond amounts but 
would allow permittees to escape their duty if they submit a 
remediation plan for areas with inadequate drainage. The AMA also 
believes that there is no evidence that land reclamation techniques are 
effective at eliminating long-term acid mine drainage; the regulations 
fail to clearly require an increase in the bond amount to reflect the 
added cost of land remediation techniques; and the amendment's 
assumption of a 20-year time frame for ongoing treatment costs is 
arbitrary and capricious.
    OSMRE's Response: We share the AMA's concerns. As set forth in the 
finding above, we are not approving the 20-year multiplier in 405 KAR 
10:015 section 8(7)(a), and the provision at 405 KAR 10:015 section 
8(7)(c), which allows a permittee to submit a land

[[Page 3957]]

reclamation and remediation plan for areas producing substandard 
drainage in lieu of bond.
    KCA: The KCA commented on March 22, 2013, and April 21, 2015, 
stating it believes the amendment submission should render the Kentucky 
program fully consistent with the SMCRA statute and implementing 
regulations and should be approved by OSMRE. Furthermore, the KCA 
submits that these program revisions successfully address the alleged 
program deficiencies identified in the 733 Notice. Upon approval of the 
amendment, KCA urges that the 733 proceedings be terminated.
    OSMRE's Response: For the reason specified in our finding with 
respect to 405 KAR 10:015, Section 8, we are not terminating the 733 
proceedings at this time.

Federal Agency Comments

    Under 30 CFR 732.17(h)(11)(i) and section 503(b) of SMCRA, on April 
21, 2015, we requested comments on the amendments from various Federal 
agencies with an actual or potential interest in the Kentucky program 
(Administrative Record No. KY-2000-05 (a-g). In a letter dated May 13, 
2015, (Administrative Record No. KY-2000-06b), the Mine Safety and 
Health Administration responded that it did not have any comments. No 
other Federal agency comments were received.

Environmental Protection Agency (EPA) Concurrence and Comments

    Under 30 CFR 732.17(h)(11)(ii), we are required to get a written 
concurrence from EPA for those provisions of the program amendment that 
relate to air or water quality standards issued under the authority of 
the Clean Water Act (33 U.S.C. 1251 et seq.) or the Clean Air Act (42 
U.S.C. 7401 et seq.). None of the revisions that Kentucky proposed to 
make in this amendment pertain to air or water quality standards. 
Therefore, we did not ask EPA to concur on the amendment, but requested 
comment on April 21, 2013. The EPA responded in a letter dated May 6, 
2015, (Administrative Record No. KY-2000-06e) acknowledging OSMRE's 
efforts to collaborate with the EPA on improvements to the 
effectiveness and consistency of regulatory programs and efforts to 
reduce the environmental impacts of surface coal mine operations. They 
did not provide any comments specific to the amendment.

V. OSMRE's Decision

    Based on the above findings, we are approving, Kentucky's amendment 
that was submitted September 28, 2012, with the following two 
exceptions:
    1. We are deferring our decision on the bi-annual actuarial review 
provision of H.B. 66 until such time as we are able to evaluate the 
stability of the KRGF over its first three full years of 
implementation. Following receipt and review of the third actuarial 
study, we will reconsider our deferral and determine whether to: (1) 
Approve the bi-annual actuarial study requirement; (2) require that the 
studies continue to be performed annually; or (3) take other 
appropriate action.
    2. We are not approving 405 KAR 10:015 8(7), that allows for a 
posting of a financial performance bond covering a specified period of 
time and allows a permittee to submit a land reclamation and 
remediation plan for areas producing substandard drainage in lieu of 
bond. We are requiring Kentucky to take one of the following actions 
within 60 days following publication of this document: (1) Notify us 
how Kentucky will require operators to address financial assurances for 
the treatment of post-mining discharges, potentially in perpetuity, 
under its currently approved program, given that we are not approving 
10:015 8(7); or (2) submit an amendment to its approved program, or a 
written description of an amendment, together with a timetable for 
enactment that is consistent with established administrative or 
legislative procedures in Kentucky, that requires operators to provide 
sufficient financial assurances for the treatment of post-mining 
discharges for as long as such discharges continue to exist.
    To implement this decision, we are amending the Federal regulations 
at 30 CFR part 917, which codify decisions concerning the Kentucky 
program. In accordance with the Administrative Procedure Act, this rule 
will take effect 30 days after date of publication. Section 503(a) of 
SMCRA requires that a State program demonstrate that such State has the 
capability of carrying out the provisions of the Act and meeting its 
purposes. SMCRA requires consistency of State and Federal standards.

VI. Procedural Determinations

Executive Order 12630--Takings

    This rule does not have takings implications. This determination is 
based on the analysis performed for the counterpart Federal regulation.

Executive Order 12866--Regulatory Planning and Review

    Pursuant to Office of Management and Budget (OMB) Guidance dated 
October 12, 1993, the approval of state program amendments is exempted 
from OMB review under Executive Order 12866.

Executive Order 12988--Civil Justice Reform

    The Department of the Interior has reviewed this rule as required 
by Section 3(a) of Executive Order 12988. The Department determined 
that this Federal Register document meets the criteria of Section 3 of 
Executive Order 12988, which is intended to ensure that the agency 
review its legislation and proposed regulations to eliminate drafting 
errors and ambiguity; that the agency write its legislation and 
regulations to minimize litigation; and that the agency's legislation 
and regulations provide a clear legal standard for affected conduct 
rather than a general standard, and promote simplification and burden 
reduction. Because Section 3 focuses on the quality of Federal 
legislation and regulations, the Department limited its review under 
this Executive Order to the quality of this Federal Register document 
and to changes to the Federal regulations. The review under this 
Executive Order did not extend to the language of the State regulatory 
program or to the program amendment that the State of Kentucky drafted.

Executive Order 13132--Federalism

    This rule is not a ``[p]olicy that [has] Federalism implications'' 
as defined by Section 1(a) of Executive Order 13132 because it does not 
have ``substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government.'' 
Instead, this rule approves an amendment to the Kentucky program 
submitted and drafted by that State. OSMRE reviewed the submission with 
fundamental federalism principles in mind as set forth in Sections 2 
and 3 of the Executive Order and with the principles of cooperative 
federalism set forth in SMCRA. See, e.g., 30 U.S.C. 1201(f). As such, 
pursuant to Section 503(a)(1) and (7) (30 U.S.C. 1253(a)(1) and (7)), 
OSMRE reviewed the program amendment to ensure that it is ``in 
accordance with'' the requirements of SMCRA and ``consistent with'' the 
regulations issued by the Secretary pursuant to SMCRA.

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

    In accordance with Executive Order 13175, we have evaluated the 
potential effects of this rule on Federally

[[Page 3958]]

recognized Indian tribes and have determined that the rule does not 
have substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes. The basis for this determination is that 
our decision is on a State regulatory program and does not involve a 
Federal regulation involving Indian Lands.

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

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

National Environmental Policy Act

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

Paperwork Reduction Act

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

Regulatory Flexibility Act

    The Department of the Interior certifies that this rule will not 
have a significant economic impact on a substantial number of small 
entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
The State submittal, which is the subject of this rule, is based upon 
counterpart Federal regulations for which an economic analysis was 
prepared and certification made that such regulations would not have a 
significant economic effect upon a substantial number of small 
entities. In making the determination as to whether this rule would 
have a significant economic impact, the Department relied upon data and 
assumptions for the counterpart Federal regulations.

Small Business Regulatory Enforcement Fairness Act

    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act. This rule: (a) Does not 
have an annual effect on the economy of $100 million; (b) will not 
cause a major increase in costs or prices for consumers, individual 
industries, Federal, State, or local government agencies, or geographic 
regions; and (c) does not have significant adverse effects on 
competition, employment, investment, productivity, innovation, or the 
ability of U.S.-based enterprises to compete with foreign-based 
enterprises. This determination is based upon the fact that the 
Kentucky submittal, which is the subject of this rule, is based upon 
counterpart Federal regulations for which an analysis was prepared and 
a determination made that the Federal regulation was not considered a 
major rule.

Unfunded Mandates

    This rule will not impose an unfunded mandate on State, local, or 
tribal governments or the private sector of $100 million or more in any 
given year. This determination is based upon the fact that the Kentucky 
submittal, which is the subject of this rule, is based upon counterpart 
Federal regulations for which an analysis was prepared and a 
determination made that the Federal regulation did not impose an 
unfunded mandate.

List of Subjects in 30 CFR Part 917

    Intergovernmental relations, Surface mining, Underground mining.

    Dated: September 19, 2017.
Thomas D. Shope,
Regional Director, Appalachian Region.

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

PART 917--KENTUCKY

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

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

0
2. Section 917.12 is amended by adding paragraphs (g) and (h) to read 
as follows:


Sec.  917.12   State regulatory program and proposed program amendment 
provisions not approved.

* * * * *
    (g) We are deferring our decision on the bi-annual actuarial review 
provision of 350 KRS 350.509 until such time as we are able to evaluate 
the stability of the Kentucky Reclamation Guaranty Fund (KRGF) over its 
first three full years of implementation.
    (h) We are not approving 405 KAR 10:015 8(7).

0
3. Section 917.15 is amended by adding an entry to the table in 
paragraph (a) in chronological order by ``Date of final publication'' 
to read as follows:


Sec.  917.15   Approval of Kentucky regulatory program amendments.

    (a) * * *

------------------------------------------------------------------------
 Original amendment submission    Date of final
              date                 publication     Citation/description
------------------------------------------------------------------------
 
                              * * * * * * *
September 28, 2012; July 5,             1/29/18   The following
 2013; and December 3, 2013.                       emergency KAR
                                                   sections are
                                                   approved: 10:001E;
                                                   10:070E; 10:080E; and
                                                   10:201E.
                                                  The following KRS
                                                   sections are
                                                   repealed: 350 KRS:700-
                                                   755, except 350.715;
                                                   the following are
                                                   amended: 350:595 and
                                                   350:990; the
                                                   following are added:
                                                   350.500-521.
                                                  The following KAR
                                                   sections are
                                                   repealed: 405 KAR
                                                   10:010, 10:020 and
                                                   10:200; the following
                                                   are amended: 8:010,
                                                   10:001, 10:030,
                                                   16:020; the following
                                                   are added: 10:015,
                                                   10:070, 10:080, and
                                                   10:090.
------------------------------------------------------------------------

* * * * *

0
4. Section 917.16 is amended by adding paragraph (p) to read as 
follows:

[[Page 3959]]

Sec.  917.16  Required regulatory program amendments.

* * * * *
    (p) We are requiring Kentucky to take one of the following actions 
by March 30, 2018: (1) Notify us how Kentucky will require operators to 
address financial assurances for the treatment of post-mining 
discharges, potentially in perpetuity, under its currently approved 
program, given that we are not approving 405 KAR 10:015 8(7); or (2) 
Submit an amendment to its approved program, or a written description 
of an amendment together with a timetable for enactment that is 
consistent with established administrative or legislative procedures in 
Kentucky, that requires operators to provide sufficient financial 
assurances for the treatment of post-mining discharges for as long as 
such discharges continue to exist.

    Editorial note: This document was received for publication by 
the Office of the Federal Register on January 24, 2018.

[FR Doc. 2018-01635 Filed 1-26-18; 8:45 am]
 BILLING CODE 4310-05-P