ENERGY AND ENVIRONMENT CABINET

Department for Natural Resources

Office of the Reclamation Guaranty Fund

(New Administrative Regulation)

 

      405 KAR 10:025. Extension of performance bond subsidization.

 

      RELATES TO: KRS 350.020, 350.060, 350.062, 350.064, 350.093, 350.095, 350.100, 350.110, 350.151, 350.465, 350.500 – 350.521

      STATUTORY AUTHORITY: KRS 350.060, 350.062, 350.064, 350.093, 350.095, 350.100, 350.151, 350.465, 350.518(5)

      NECESSITY, FUNCTION, AND CONFORMITY: KRS Chapter 350 authorizes the cabinet to promulgate administrative regulations to ensure bonds are adequate to perform reclamation in the event of forfeiture. This administrative regulation establishes information related to the operation of the Kentucky Reclamation Guaranty Fund.

 

      Section 1. Applicability. This administrative regulation shall apply only to entities seeking to obtain by transfer the permit of a current member of the KRGF who was a member of the former Kentucky Voluntary Bond Pool.

 

      Section 2. Performance Bond Subsidization. (1) Performance bond subsidization may be extended to an applicant who was not a member of the former voluntary bond pool fund prior to its dissolution if the:

      (a) Applicant intends to obtain its permit by transfer from a member of the former Kentucky Voluntary Bond Pool;

      (b) Permit to which the applicant intends to succeed meets one (1) or more of the criteria for the cabinet to seek bond forfeiture under 405 KAR 10:050, Section 3;

      (c) Applicant meets the requirements of this administrative regulation; and

      (d) Commission determines it is in the best interest of the KRGF pursuant to KRS 350.509(1).

      (2) If the commission determines the criteria for performance bond subsidization extension have been met, the bonds previously issued by the KRGF to the member of the former voluntary bond pool fund shall be substituted for bonds newly issued by the KRGF in accordance with the provisions of 405 KAR 10:015, Section 5.

      (3) Subsequent to the extension of performance bond subsidization for the issuance of a successor permit pursuant to subsection (2) of this section, the KRGF may extend additional subsidization to the permittee for the permit to enable the permittee to complete mining and reclamation operations, if the commission determines it is in the best interest of the KRGF. The commission shall review an applicant’s ability to meet the approval requirements of this administrative regulation when an application for additional subsidization has been submitted.

      (4) Only permits with bonds previously covered by the former voluntary bond pool fund shall be eligible for performance bond subsidization. Other permits held by the applicant shall not be subsidized by the KRGF.

 

      Section 3. Applicant Criteria. (1) Applicants for extension of performance bond subsidization shall submit an application on the Application for Performance Bond Subsidization for Permit Succession, RGF-4 form, which shall include:

      (a) Identification of the permittee which the applicant wishes to succeed;

      (b) Identification of permits the applicant intends to obtain by transfer;

      (c) Information regarding the financial standing and compliance record of the applicant; and

      (d) Any other information the commission needs to make a determination.

      (2)(a) The commission shall consider applications on a case-by-case basis and meeting the criteria under this section shall not be grounds for automatic performance bond subsidization. An applicant shall be allowed thirty (30) calendar days after receipt of the commission’s determination to contest the determination in writing.

      (b) The written notice shall include:

      1. An explanation of the nature of the contest; and

      2. The documentation relied upon by the applicant.

      (3) The applicant for extended performance bond subsidization shall be in good financial standing. The financial standing of the applicant shall be determined based upon the financial information required in the application and other information available to the KRGF and the cabinet. The commission shall consider the following financial ratios and related financial information:

      (a) The ratio of current assets to current liabilities;

      (b) The ratio of net income to net sales;

      (c) The ratio of total liabilities to stockholders’ equity;

      (d) The ratio of net income to owners’ equity;

      (e) The ratio of owners’ equity to total assets; and

      (f) The ratio of the sum of cash, marketable securities, and net receivables, to current liabilities.

      (4) The applicant for extended performance bond subsidization shall have held, under the same name or other name as provided in subsection (5) of this section, a permit issued by the cabinet to conduct surface mining operations in Kentucky or by an authorized agency governing surface mining operations in another state or territory, for a period of at least five (5) of the seven (7) years immediately preceding the application for extended performance bond subsidization, and have exhibited an approved compliance record as detailed by Section 4 of this administrative regulation.

      (5) If the applicant cannot satisfy the requirements of subsection (4) of this section, then the following types of permits held by persons other than the applicant may be used to satisfy those requirements:

      (a) Permits issued to a person who owns fifty (50) percent or more of the applicant;

      (b) Permits issued to a person who is owned fifty (50) percent or more by a person meeting the requirements of subsection (4) of this section; or

      (c) Permits issued to persons whose combined ownership of the applicant is fifty (50) percent or more, provided each person meets the requirements set forth in subsection (4) of this section.

 

      Section 4. Determination of Compliance Record. (1) An applicant shall be deemed to have an approved compliance record if the applicant, each person who owns or controls the applicant, each person who is owned or controlled by the applicant, and each person who is under common ownership and control with the applicant meet all the following criteria:

      (a) Has never committed a violation for mining without having first obtained the required permit;

      (b) Has never forfeited a bond or had a permit revoked;

      (c) Has never avoided forfeiture of a bond because a surety performed reclamation work in order to avoid forfeiture;

      (d) Has never been determined to have demonstrated a pattern of violations;

      (e) Has not been issued more than one (1) order for cessation and immediate compliance for failure to complete required remedial measures in the most recent thirty-six (36) months of operation and the order was abated as ordered in a timely manner and was not for a violation of contemporaneous reclamation requirements under 405 KAR 16:020 or 18:020 or other applicable state or federal statute or regulation;

      (f) Has not been issued more than one (1) order for cessation and immediate compliance for creating an imminent danger to the health and safety of the public or causing significant, imminent environmental harm in the most recent thirty-six (36) months of operation and the order was abated as ordered in a timely manner;

      (g) Has not committed more than one (1) violation of contemporaneous reclamation requirements under 405 KAR 16:020 or 18:020 or other applicable state or federal statute or regulation in the most recent thirty-six (36) months of operation and the violation was abated in a timely manner, except the commission may for good cause and by unanimous vote exclude violations that have been terminated with no civil penalty;

      (h) Has not committed more than three (3) violations of KRS Chapter 350 or 405 KAR Chapters 7 through 24 or other applicable state or federal statute or regulation on any one (1) permit in any twelve (12) month period of the most recent thirty-six (36) months of operation, except the commission may for good cause and by unanimous vote exclude the twelve (12) month period on one (1) permit during which the largest number of violations occurred and may for good cause and by unanimous vote exclude violations that were timely abated and terminated with no civil penalty; and

      (i) Has not had civil penalties remaining unpaid more than thirty (30) days after they were due and payable, within the most recent thirty-six (36) months of operation.

      (2) To the extent the information is available, the commission may take into account the performance of the applicant and each person who owns or controls, is owned or controlled by, or is under common ownership or control with the applicant, in other states and on federal lands and Indian lands under criteria similar or equivalent to those in this section.

 

      Section 5. Compliance Review for Continued Subsidization. The commission shall review the compliance record of former applicants for extended bond subsidization. If the commission determines that the permittee no longer satisfies any of the criteria in Section 4(1) of this administrative regulation, it may advise the cabinet that the permittee is no longer eligible for performance bond subsidization. Upon receipt of this notice, the cabinet shall immediately order the permittee to cease surface coal mining operations on that permit until it has obtained alternate bond coverage. During the period of cessation, the permittee shall maintain the permit in compliance with the requirements of KRS Chapter 350 and 405 KAR Chapters 7 through 24.

 

      Section 6. Permit Specific Bond. (1) For each permit obtained by transfer from a member of the former voluntary bond pool fund, a permit-specific bond at a rate determined by the commission but no less than $2,000 per acre shall be posted.

      (2) Permit specific bonds posted pursuant to this section shall be released in accordance with the provisions of 405 KAR 10:015, Section 2.

 

      Section 7. Incorporation by Reference. (1) "Application for Performance Bond Subsidization for Permit Succession", April 2014, is incorporated by reference.

      (2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department for Natural Resources, 2 Hudson Hollow, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m.

 

LEONARD K. PETERS, Secretary

      APPROVED BY AGENCY: June 30, 2014

      FILED WITH LRC: June 30, 2014 at 2 p.m.

      PUBLIC HEARING AND PUBLIC COMMENT PERIOD: A public hearing on this administrative regulation shall be held on August 26, 2014 at 10:00 a.m. (Eastern Time) at Conference Room D-16 of the Department for Natural Resources at #2 Hudson Hollow, Frankfort, Kentucky. Individuals interested in being heard at this hearing shall notify this agency in writing by August 19, 2014, five workdays prior to the hearing, of their intent to attend. If no notification of intent to attend the hearing is received by that date, the hearing may be cancelled. This hearing is open to the public. Any person who wishes to be heard will be given an opportunity to comment on the proposed administrative regulation. A transcript of the public hearing will not be made unless a written request for a transcript is made. If you do not wish to be heard at the public hearing, you may submit written comments on the proposed administrative regulation. Written comments shall be accepted until close of business September 2, 2014. Send written notification of intent to attend the public hearing or written comments on the proposed administrative regulation to the contact person.

      CONTACT PERSON: Michael Mullins, Regulation Coordinator, #2 Hudson Hollow, Frankfort, Kentucky 40601, phone (502) 564-6940, fax (502) 564-5698, email Michael.Mullins@ky.gov.

 

REGULATORY IMPACT ANALYSIS AND TIERING STATEMENT

 

Contact Person: Michael Mullins

      (1) Provide a brief summary of:

      (a) What this administrative regulation does: This administrative regulation establishes the criteria necessary for entities to qualify to receive performance bond subsidies when a permit that was in the former voluntary bond pool is transferred to them. The administrative regulation applies only to entities seeking to obtain by transfer the permit of a current member of the Kentucky Reclamation Guaranty Fund (KRGF) who was a member of the former Kentucky Voluntary Bond Pool.

      (b) The necessity of this administrative regulation: This administrative regulation is necessary to establish the qualifying criteria for extended performance bond subsidization of permits when transferred from members of the former voluntary bond pool to KRGF members that were not former voluntary bond pool members.

      (c) How this administrative regulation conforms to the content of the authorizing statutes: KRS 350.518(5) authorizes the Kentucky Reclamation Guaranty Fund Commission (KRGFC) to establish eligibility standards for entities interested in seeking to obtain by transfer the permit of a current member of the KRGF who was a member of the former Kentucky Voluntary Bond Pool.

      (d) How this administrative regulation currently assists or will assist in the effective administration of the statutes: This administrative regulation assists in the administration of the statutes by establishing the criteria authorized by KRS 350.518(5).

      (2) If this is an amendment to an existing administrative regulation, provide a brief summary of:

      (a) How the amendment will change this existing administrative regulation: NA

      (b) The necessity of the amendment to this administrative regulation: NA

      (c) How the amendment conforms to the content of the authorizing statutes: NA

      (d) How the amendment will assist in the effective administration of the statutes: NA

      (3) List the type and number of individuals, businesses, organizations, or state and local governments affected by this administrative regulation: This administrative regulation could impact the 261 KRGF members.

      (4) Provide an analysis of how the entities identified in question (3) will be impacted by either the implementation of this administrative regulation, if new, or by the change, if it is an amendment, including:

      (a) List the actions that each of the regulated entities identified in question (3) will have to take to comply with this administrative regulation or amendment: This administrative regulation will require the entities that desire to transfer current permits from former voluntary bond pool members to meet certain criteria in order to receive performance bond subsidization of the transferred permit under the KRGF.

      (b) In complying with this administrative regulation or amendment, how much will it cost each of the entities identified in question (3): The cost to each permittee will vary depending on the amount of reclamation bond required in order to transfer the permit. There will be no cost to members of the KRGF not involved in the permit transfer.

      (c) As a result of compliance, what benefits will accrue to the entities identified in question (3): By meeting the criteria of this administrative regulation the entity will receive performance bond subsidization of the permit that was transferred from the former voluntary bond pool. Members of the KRGF not involved in the permit transfer will benefit from the avoidance of bond forfeitures and the resulting withdrawals of KRGF assets to complete reclamation of the permits.

      (5) Provide an estimate of how much it will cost the administrative body to implement this administrative regulation:

      (a) Initially: This new administrative regulation will not significantly increase the cost to the Office of the Reclamation Guaranty Fund (ORGF).

      (b) On a continuing basis: Future costs would remain essentially unchanged for this function in the ORGF.

      (6) What is the source of the funding to be used for the implementation and enforcement of this administrative regulation: A combination of federal funds and restricted funds will be used.

      (7) Provide an assessment of whether an increase in fees or funding will be necessary to implement this administrative regulation, if new, or by the change if it is an amendment: There will not be a need to increase fees or funding related to this proposed administrative regulation.

      (8) State whether or not this administrative regulation established any fees or directly or indirectly increased any fees: This administrative regulation does not increase or establish any fees.

      (9) TIERING: Is tiering applied? No. All entities that desire continued performance bond subsidization of former voluntary bond pool permits upon transfer will be required to meet the same criteria.

 

FISCAL NOTE ON STATE OR LOCAL GOVERNMENT

 

      1. What units, parts or divisions of state or local government (including cities, counties, fire departments, or school districts) will be impacted by this administrative regulation? The Division of Mine Permits, Division of Mine Reclamation and Enforcement, Office of the Reclamation Guaranty Fund, and the KRGFC.

      2. Identify each state or federal statute or federal regulation that requires or authorizes the action taken by the administrative regulation. KRS 350.060, 350.062, 350.064, and the provisions of KRS 350.518(5).

      3. Estimate the effect of this administrative regulation on the expenditures and revenues of a state or local government agency (including cities, counties, fire departments, or school districts) for the first full year the administrative regulation is to be in effect.

      (a) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for the first year? This new administrative regulation will not generate any new revenue for the state or local government. This administrative regulation could impact coal severance tax contributions to counties. The proposed administrative regulation may result in continued mining on permits that would normally have been forfeited and considered sterilized. However, the agency would be unable to predict the amount of revenue generated due to the uncertainty of the number of permits that may be transferred.

      (b) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for subsequent years? This new administrative regulation will not generate revenue in subsequent years. This administrative regulation could impact coal severance tax contributions to counties. The proposed administrative regulation may result in continued mining on permits that would normally have been forfeited and considered sterilized. However, the agency would be unable to predict the amount of revenue generated due to the uncertainty of the number of permits that may be transferred.

      (c) How much will it cost to administer this program for the first year? The total expenditures for the ORGF is estimated at $600,000.

      (d) How much will it cost to administer this program for subsequent years? Future costs would remain essentially unchanged for operation of the ORGF.

      Note: If specific dollar estimates cannot be determined, provide a brief narrative to explain the fiscal impact of the administrative regulation.

      Revenues (+/-): NA

      Expenditures (+/-): NA

      Other Explanation: NA