Interim Joint Committee on Natural Resources and Environment


Minutes of the<MeetNo1> 5th Meeting

of the 2015 Interim


<MeetMDY1> November 5, 2015


Call to Order and Roll Call

The<MeetNo2> 5th meeting of the Interim Joint Committee on Natural Resources and Environment was held on<Day> Thursday,<MeetMDY2> November 5, 2015, at<MeetTime> 1:00 PM, in<Room> Room 149 of the Capitol Annex. Senator Jared Carpenter, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Jared Carpenter, Co-Chair; Representative Jim Gooch Jr., Co-Chair; Senators C.B. Embry Jr., Chris Girdler, Ernie Harris, John Schickel, Brandon Smith, Johnny Ray Turner, Robin L. Webb, and Whitney Westerfield; Representatives Hubert Collins, Tim Couch, Jim DuPlessis, Chris Harris, Reginald Meeks, Marie Rader, John Short, Fitz Steele, and Jill York.


Guests: Mr. Steve Hohmann and Mr. Keith Smith, Department of Natural Resources; Mr. Larry Adams, Booth Energy; Mr. David Wicker, Kentucky Department of Fish and Wildlife Resources; Ms. Lane Boldman, Kentucky Conservation Committee.


LRC Staff: Tanya Monsanto, Stefan Kasacavage, and Kelly Blevins.


Chairman Carpenter requested that the committee join him in a moment of silence for Richmond Police Officer Daniel Ellis, who had been killed in the line of duty.


Kentucky Reclamation Guaranty Fund and Bond Pool

††††††††††† Commissioner Steve Hohmann, Department of Natural Resources (DNR), explained that the Department of Natural Resources is a regulatory authority for the Federal Office of Surface Mining (OSM). The department conducted a national review of the stateís bonding in January 2011. The published study stated that Kentuckyís reclamation bonding was insufficient in bond forfeiture. The cabinet uses performance bonds in forfeiture to perform the reclamation on the coal mine site. In response to the study, Secretary Len Peters, Energy and Environment Cabinet, formed a bonding work group to develop bond increases and new bonding protocol. In May 2012, OSM issued a 733 letter that stated the reclamation program in Kentucky was deficient and needed to make changes to ensure that coal mine site could be reclaimed to the standards.


Since 1982, Kentucky has only received one other 733 letter. The letter required both immediate and long term steps to shore up the reclamation program. The cabinet promulgated emergency regulations to increase bonding, to raise the minimum bond and the rate per acre for supplemental insurance. The new standards and rates were imposed in conjunction with midterm review of coal mine permits. The new protocol increased bond amounts by 60 percent, and imposed a twenty year bond requirement for substandard water discharges. However, all these protocols were immediate. The Office of Surface Mining required long-term changes.


The long-term change was instituted when the cabinet requested legislation to create a mandatory bond pool. The cabinet hired an actuarial company to perform a study, and the results of the study indicated need to completely restructure the current small operators bond pool and create the coal mine reclamation bond fund. In March 2013, House Bill 66 was signed by the Governor, and HB 66 created the Kentucky Reclamation Guaranty Fund. The previous small bond pool was folded into the larger bond pool which requires mandatory participation by all coal operators. All of the commission funds and obligations were transferred to the new fund. However, subsidence or discharge of water would need a supplemental bond; those discharges and associated damages would not be covered by the new fund.


††††††††††† Administrative regulations, which were promulgated in 2013, established a structure for claims and mechanisms to review the viability of the fund. These administrative regulations established that representatives of regulatory, small and large bonding, surety, and the Environmental Protection Agency (EPA) entities would serve on the commissionís membership. The statute allowed bond subsidization of small bond members. There have been 19 new companies formed that pay the $10,000 fee. There have been five bids to conduct a study for Fiscal Year 2014-2015, the bid will be awarded in March 2016.


††††††††††† Since the fundís inception, revenues show a slow increase from $2.7 million in 2013 to $3.4 million in 2015.


††††††††††† In response to a question from Chairman Carpenter, Commissioner Hohmann said that 1,131 miles of permitted land are governed by the fund. There are 307 companies. There have been 41 forfeitures, and the fund has only made one payment for excess.


††††††††††† In response to a question regarding when reclamation is performed and if the cabinet has sufficient funds to cover reclamation, Commissioner Hohmann said that reclamation depends on the state of a permit when forfeited and whether bond money covers the reclamation costs. If an operation is in trouble early on, the bond fund is not enough and can represent a large liability to the fund.


††††††††††† In response to a question about whether the bond reverts to the General Fund, Commissioner Hohmann stated that money associated with the bond when all performance is performed normally reverts back to the company surety or bank rather than the General Fund.


††††††††††† In response to a question by Representative Harris regarding an increase in forfeitures due to economic downturn, Commissioner Hohmann said that the number has remained about the same. The assets in bankruptcy are orphaned, and another company usually picks them up.


A representative from the Department of Fish and Wildlife Resources requested an amendment to administrative regulation 301 KAR 1:201. After a motion and a second, the amendment was approved.


The meeting materials are on file in the LRC Library. There being no further business, the meeting was adjourned at approximately 2:00 PM.