British Columbia Mine Reclamation Symposia

Performance bond requirements for coal mining in the United States Hamm, Louis W. 1988

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th  Proceedings of the 12 Annual British Columbia Mine Reclamation Symposium in Vernon, BC, 1988. The Technical and Research Committee on Reclamation  55  th  Proceedings of the 12 Annual British Columbia Mine Reclamation Symposium in Vernon, BC, 1988. The Technical and Research Committee on Reclamation  56  Abstract One of the primary goals of the Surface Mining Control and Reclamation Act of 1977 (SMCRA) is to ensure adequate reclamation of areas disturbed by surface coal mining operations. The U.S. Office of Surface Mining Reclamation and Enforcement (OSMRE) and State enforcement agencies apply the requirements of SMCRA by permitting mining only after receipt of a performance bond sufficient to ensure completion of the approved reclamation plan. Performance bond amounts are based upon the costs of performing reclamation by a third-party contractor engaged by the regulatory authority. The amount is also based upon those conditions that define the point in the planned mining operation that presents the greatest estimated reclamation costs for the permitted mining term. The minimum required bond amount is $10,000 and any bond may be periodically adjusted by the regulatory authority to account for changes in the mining plan, postmining land use, or other circumstances that may increase or decrease the cost of reclamation.  Background The Surface Mining Control and Reclamation Act (SMCRA) requires each applicant for a coal mining permit to submit a reclamation plan, which demonstrates compliance with State and Federal standards for reclamation (Section 507, P.L. 95-87). In addition, SMCRA requires that a performance bond be filed in sufficient amount to cover the cost of reclamation in accordance with the approved plan if such reclamation had to be performed by the regulatory authority in the event of bond forfeiture (Section 509). Bonds must be filed with the regulatory authority after the mining permit application is approved, but before the permit is allowed to be issued. The regulatory agency determines and sets the bond amount based upon the approved reclamation plan, the estimated reclamation costs provided by the mining company, and indirect costs which would be incurred by the regulatory agency in the event of bond forfeiture.  Requirements Based upon the requirements of SMCRA that each bond be sufficient to cover complete reclamation if it had to be performed by the regulatory authority, regulatory requirements covering performance bonds were established by the Federal government through the Office of Surface Mining Reclamation and Enforcement (OSMRE), and by each individual State regulatory agency. Major provisions of these regulations include the following: The amount of bond for each permit area is determined by the regulatory authority and should reflect the probable difficulty of reclamation considering such factors as topography, geology, hydrology, and revegetation. The minimum bond amount for any permitted mine is $10,000. Bond amounts may be periodically adjusted to account for changes in the mining plan, postmining land use, or other circumstances that may increase or decrease the cost of reclamation. Acceptable bond forms are: surety, collateral, and self bonds, or combinations of these.  th  Proceedings of the 12 Annual British Columbia Mine Reclamation Symposium in Vernon, BC, 1988. The Technical and Research Committee on Reclamation  57  Bond liability is for the duration of the coal mining and reclamation operation, plus an additional period to include confirmation of successful, self-sustaining revegetation which can vary from 5 to 10 years beyond completion of reclamation. Individual parts of the mining operation may be bonded and released separately as they are reclaimed. This is incremental bonding. The bond may be released in phases for the entire permit area or incremental area. Phase I is considered complete following backfilling and regrading, and topsoil replacement. At that point, 60 percent of the bond may be released. Phase II is complete after revegetation, and additional bond may be released retaining the amount necessary to reestablish revegetation by a third party. Phase III releases the remaining bond following completion of all mining and reclamation, and the operator's liability period.  Forfeiture All or part of a performance bond may be forfeited if the mine operator refuses or is unable to abate violations, or conduct reclamation; if the permit terms are not met; or if the operator defaults on conditions under which the bond was accepted. If forfeiture occurs, the regulatory authority may allow the surety to complete the reclamation plan if the surety can demonstrate their ability to complete the reclamation in accordance with the approved reclamation plan. For those cases where the bond is insufficient to pay for the full cost of reclamation, the operator is liable under the regulations for the remaining costs.  Cost Estimating The OSMRE uses four major sources of information to estimate performance bond amounts. • The mining and reclamation plans provided by the permit applicant • Equipment productivity and performance guidebooks • Construction cost guidebooks • Actual contract data Once the application information has been reviewed to establish the mining operation configuration and the maximum reclamation requirements, the regulatory authority must calculate the estimated cost to complete reclamation at its maximum disturbance level. Equipment productivity and performance guidebooks are used to determine the most efficient type of equipment and the hours of operation necessary to perform the reclamation. Construction cost guidebooks provide the costs associated with operation of the equipment over the necessary operation time. As a general rule, the OSMRE uses operator rates based upon factors such as purchase prices, depreciation, equipment ownership-related overhead costs, and average annual use. Hourly operating expenses are based on average fuel, lubrication and wear item costs, and maintenance labor costs; but do not include equipment operator costs. Equipment operator costs are determined from the U.S. Department of Labor, Davis-Bacon wage rates for the particular region where the mine is located.  th  Proceedings of the 12 Annual British Columbia Mine Reclamation Symposium in Vernon, BC, 1988. The Technical and Research Committee on Reclamation  58  If information from other similar reclamation projects in the vicinity of the mine location is available, those costs will be used in the bond calculation. Included in the total bond amount are both direct and indirect reclamation costs. Direct costs include: • Structure removal and demolition • Earthmoving • Revegetation Other direct costs such as sealing of openings or water treatment may be included as necessary. Indirect reclamation costs utilized by the OSMRE include: • Mobilization and demobilization • Contingencies • Redesign costs • Profit and overhead • Contract management fee Mobilization and demobilization covers the costs associated with a third-party contractor getting his equipment to the mine site after the mine operator has left the site and taken all his mine equipment with him. Contingencies provide for project uncertainties and unexpected natural events. OSMRE adds the following contingency amounts as a percentage of the direct costs: Contingency Allowances  Total Direct Costs (S) ______________________________ Contingency (%) O - 500,000  500,000 - 5 million 5 million - 50 million Greater than 50 million  10  7 4 2  The reclamation plan, as submitted by the operator, functions on the assumption that the operation will continue for the full permit term. However, the reclamation plan may not adequately reflect site conditions at time of forfeiture. Therefore, redesign costs are added to cover the cost of necessary engineering design modifications for premature mining cessation. The percentage of direct costs is shown in Graph 1. Profit and overhead is added to cover those costs as they are associated with the necessary third-party contractor. The amount is based on a percentage of the direct cost as shown in Graph 2. The contract management fee is added to cover the cost of project inspection and supervision. Such management may include recommending change orders, verifying completed work, and verifying compliance with project specifications. The percentage of direct costs is shown in Graph 3.  th  Proceedings of the 12 Annual British Columbia Mine Reclamation Symposium in Vernon, BC, 1988. The Technical and Research Committee on Reclamation  59  The resulting total of direct and indirect costs results in a total which becomes the bond amount that must be posted by the permit applicant before mining can begin. A complete discussion of bond cost calculating can be found in the "Handbook for Calculation of Reclamation Bond Amounts", produced by OSMRE in 1987.  Summary Performance bonds in U.S. coal mining are based upon the costs of performing reclamation by a third-party contractor engaged by the regulatory authority. Bonds are acceptable in surety, collateral, or self-bond forms and can be adjusted with changing circumstances in planned mine reclamation. An adequate bond must be in effect throughout mining and mine reclamation including a period of liability of 5 to 10 years beyond completion of reclamation to insure that the site is self sufficient for the proposed land use.  th  Proceedings of the 12 Annual British Columbia Mine Reclamation Symposium in Vernon, BC, 1988. The Technical and Research Committee on Reclamation  60  th  Proceedings of the 12 Annual British Columbia Mine Reclamation Symposium in Vernon, BC, 1988. The Technical and Research Committee on Reclamation  61  th  Proceedings of the 12 Annual British Columbia Mine Reclamation Symposium in Vernon, BC, 1988. The Technical and Research Committee on Reclamation  62  

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