Pennsylvania Regulatory Program

DEPARTMENT OF THE INTERIOR

Office of Surface Mining Reclamation and Enforcement

30 CFR Part 938

Pennsylvania Regulatory Program

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

Interior.

ACTION: Final rule; approval of amendment.

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SUMMARY: OSM is approving, with certain exceptions, a proposed

amendment to the Pennsylvania regulatory program (hereinafter referred

to as the Pennsylvania program) approved under the Surface Mining

Control and Reclamation Act of 1977 (SMCRA). The proposed amendment

establishes a self-bonding program as an alternative to the current

financial instrument options available to the permittee for posting a

performance bond. The performance bond is required to be submitted and

approved by the regulatory authority before the permit is issued or

mining initiated.

EFFECTIVE DATE: July 20, 1994.

FOR FURTHER INFORMATION CONTACT: George J. Rieger, Acting Director,

Harrisburg Field Office, Office of Surface Mining Reclamation and

Enforcement, Harrisburg Transportation Center, Third Floor, Suite 3C,

4th and Market Streets, Harrisburg, Pennsylvania 17101. Telephone:

(717) 782-4036.

SUPPLEMENTARY INFORMATION:

I. Background on the Pennsylvania Program

II. Submission of the Proposed Amendment

III. Director's Findings

IV. Summary and Disposition of Comments

V. Director's Decision

VI. Procedural Determinations

I. Background on the Pennsylvania Program

The Secretary of the Interior conditionally approved the

Pennsylvania program on July 31, 1982. Background information on the

Pennsylvania program including the Secretary's findings, the

disposition of comments, and a detailed explanation of the conditions

of approval can be found in the July 30, 1982, Federal Register (47 FR

33050). Subsequent actions concerning conditions of approval and

program amendments can be found at 30 CFR 938.11, 938.12, 938.15 and

938.16.

II. Submission of the Proposed Amendment

On May 11, 1993, the Pennsylvania Department of Environmental

Resources (PADER) submitted to OSM the rules published in the

Pennsylvania Bulletin 20 Pa. B. 2517 and 21 Pa. B. 5142 as an amendment

(Administrative Record Number PA 823.00) to the approved regulatory

program. The amendment provides a permit applicant the option to use a

self-bond as a financial instrument instead of a surety or collateral

bond for the performance bond required by PADER before a coal mine

permit may be issued or coal mining activities conducted. The proposed

amendment also allows an eligible permittee to replace an existing

surety or collateral bond with a self-bond.

OSM announced receipt of the proposed amendment in the June 7,

1993, Federal Register (58 FR 31926), and, in the same document, opened

the public comment period and provided an opportunity for a public

hearing on the adequacy of the proposed amendment. The public comment

period closed on July 7, 1993.

By letter dated January 24, 1994 (Administrative Record No. PA

823.07), OSM provided comments to Pennsylvania on the proposed

amendment. By letter dated February 17, 1994 (Administrative Record No.

PA 823.09), Pennsylvania submitted responses to OSM's concerns.

III. Director's Findings

Set forth below, pursuant to SMCRA and the Federal regulations at

40 CFR 732.17, are the Director's findings concerning the proposed

amendment. Any revisions not specifically addressed below are found to

be no less stringent than SMCRA and no less effective than the Federal

rules.

1. Section 86.142 Definitions

a. Adverse opinion. Pennsylvania proposes to add this definition to

mean a statement by an independent certified public accountant (CPA)

that the financial statements of the applicant do not present fairly

the financial condition of the applicant in conformity with generally

accepted accounting principles. Although there is no counterpart

Federal definition, the Federal regulations at 30 CFR 800.23(b)(4)(i)

require that the applicant submit a financial statement for the latest

complete fiscal year accompanied by a report by an independent

certified public accountant and containing the accountant's audit

opinion or review opinion. If either opinion contains an adverse

opinion, the self-bond application must be denied. The independent

CPA's audit or review opinion is required on the accuracy of the

information in the financial statement. An Environmental Protection

Agency (EPA) proposed rule (52 FR 12786, April 17, 1987) in discussing

a firm's financial tests states that an ``adverse opinion, indicates

that, in the opinion of the auditor, a firm's financial statement does

not present the firm's financial position, results of operations, or

changes in financial position in a manner that conforms to generally

accepted accounting principles. . . .'' Although the EPA discussion is

not controlling on OSM, it is being used for guidance. While there is

no Federal definition, the Director finds the proposed definition to be

not inconsistent with the requirements of SMCRA and the Federal

regulations because the application of the definition will aid

Pennsylvania in applying a uniform standard in determining whether or

not a self-bond application should be rejected.

b. Applicant. Pennsylvania proposes to add a definition for

``applicant'' to mean a permittee or an applicant for a permit who is

applying to self-bond under this subchapter. There is no corresponding

Federal definition for ``applicant'' under the self-bonding rules.

However, at 30 CFR 701.5 the Federal definition of ``applicant'' means

any person seeking a permit, permit revision, renewal, and transfer,

assignment, or sale of permit rights from a regulatory authority to

conduct surface coal mining and reclamation operations or, where

required, seeking approval for coal exploration. Under section 86.1,

the State's general definition of applicant means any person who seeks

to obtain a permit from the Department to conduct coal mining

activities under this chapter. Pennsylvania is proposing an additional

definition of ``applicant'' at section 86.142 to include an existing

permittee or applicant for a permit who is applying to utilize a self-

bond. At first blush it appears that the two definitions conflict with

each other. Upon further examination, the definition of ``applicant''

found at section 86.142 will not supersede the general definition of

applicant found at section 86.1 because the entity defined under

section 86.142 already has to be a permittee or in the process of

becoming one. By its own terms, the section 86.142 definition only

concerns the self-bonding regulations. Therefore, the definition of

``applicant'' as it is applied in the self-bonding regulations is

consistent with the self-bonding regulations at 30 CFR 800.23.

c. Continuous business operations. Pennsylvania proposes to add

this definition to mean operations in which the applicant has been in

business and operating for at least 10 years prior to the filing of its

self-bonding application unless the applicant's existence results from

a reorganization, consolidation or merger involving a company with this

longevity. If the applicant is a majority-owned subsidiary of a

corporation, it may rely upon its parent corporation's business

history, which has a 10-year business history.

The Pennsylvania definition allows applicants that were once one

type of entity but that are now a different type of entity, either as a

result of a merger, consolidation or a reorganization, to become self-

bonded so long as one of the entities was in existence for 10 years.

The Federal regulation at 30 CFR 800.23(b)(2) requires a self-bonding

applicant to be in continuous operation for a period of not less than 5

years immediately preceding the self-bond application. Events beyond

the control of the applicant and not affecting its continuance as an

entity may be excluded. The purpose behind the Federal rule was to

``show the business entity's intent and ability to remain in operation

and undertake the subsequent mining and reclamation.'' 48 FR 36418,

36420 (August 10, 1993). Thus, it appears that Pennsylvania's use of

its definition may not fulfill the purpose of the Federal rule if the

new entity was not in existence for at least 5 years. However, this

definition if taken in concert with sections 86.159(b)(5), (c)(4), and

(j), which are discussed below, insures as much as the 5-year

continuous business operation requirement does, that the applicant will

be in existence to complete the mining and the subsequent reclamation.

Section 86.159(b)(5), which requires that the applicant must have

honored in the last 3 years all of its self-bonding obligations and

section 86.159(b)(6), which prohibits the acceptance of an applicant

whose surety bonds were canceled for nonpayment of premiums, fraud or

failure to comply with the terms of the surety bond, are both

indicators of a history for compliance with bonding obligations and as

such are good indicators of a continuance in the future of complying

with such obligations. Section 86.159(c)(4), which requires an

applicant to certify that it will maintain its corporate status for at

least 5 years, is more than just a statement because this certification

is subject to criminal penalties for false swearing. Section 86.159(j),

which requires the applicant, on a sliding scale of liability and net

worth, to submit a security interest to Pennsylvania is an expression

of confidence of the company that it expects to be in existence for the

term of the permit and to have the security interest which was

proffered to the State, released. Therefore, based on the above

discussion, the Director finds that the definition of ``continuous

business operation'' in conjunction with the above-noted sections is no

less effective than 30 CFR 800.23(b)(2).

d. Current asset. Pennsylvania is proposing a new definition to

mean cash or other assets which are reasonably expected to be converted

to cash or sold or consumed within 1 year or within the normal

operating cycle of the business. The Director finds that the proposed

definition is substantively identical to and no less effective than the

Federal definition of ``current asset'' at 30 CFR 800.23(a).

e. Current liability. The State proposes this definition to mean an

obligation which is reasonably expected to be paid or liquidated within

1 year or within the normal operating cycle of the business. The

Director finds that the proposed definition is substantively identical

to the Federal definition of ``current liabilities'' at 30 CFR

800.23(a).

f. Disclaimer of opinion. The State proposes this definition to

mean a statement by an independent certified public accountant (CPA)

that he does not express an opinion on the financial statements of the

applicant. Pursuant to section 86.159(g), an application will be

rejected if a disclaimer of opinion is expressed by the CPA. There is

no counterpart Federal definition for this term. However, the EPA

discussed this term when it was proposing financial responsibility for

owners of underground petroleum storage tanks. While EPA's discussions

are not controlling on OSM's decision, it is helpful. EPA stated that a

disclaimer of opinion meant that ``the auditor does not express an

opinion on the firm's financial statement. Auditors issue disclaimers

of opinion of their examinations of a firm's financial statements have

been limited in some way or if there are uncertainties regarding the

firm's financial statements.'' 52 FR 12786 (April 17, 1987). The

Director concludes that application of this definition will assist

Pennsylvania in determining whether or not the applicant is a suitable

candidate for self-bonding. Therefore, the Director finds this

definition not inconsistent with the requirements of SMCRA and the

Federal regulations.

g. Financial statement. The State is proposing a new definition to

mean a formal report of the applicant's status of accounts at a

particular time, prepared to show the operating results and financial

condition of the applicant's business. The term includes, but is not

limited to, the balance sheet, income statement, and statement of

change in financial position prepared in accordance with generally

accepted accounting principles. There is no counterpart Federal

definition for this term. However, the State's definition follows basic

accounting principles. Therefore, the Director finds the proposed

definition to be not inconsistent with the requirements of SMCRA and

the Federal regulations.

h. Fixed asset. The State proposes that this term includes plants

and equipment, but does not include land or coal in place. Since this

proposed rule is substantively identical to the Federal definition of

``fixed asset,'' the Director finds that it is no less effective than

the Federal rule.

i. Independent certified public accountant. Pennsylvania proposes

this definition to mean a certified public accountant not dependent on

or subject to the direct control of the applicant. There is no

counterpart Federal definition.

However, the Federal regulations at 30 CFR 800.23(b)(4) require an

independent certified public accountant's (CPA) audit or review opinion

on the accuracy of the information in the financial statement. By

letter of February 17, 1994 (Administrative Record No. 823.09),

Pennsylvania stated that the purpose of the definition was to address

those circumstances where the CPA was a sole practitioner whose primary

client was the applicant. The Director believes the application of this

definition to be an additional safeguard to Pennsylvania's self-bonding

program. Therefore, the Director finds the proposed definition to be

not inconsistent with the requirements of SMCRA and the Federal

regulations.

j. Liability. Pennsylvania proposes to add this definition to mean

an obligation to transfer assets or provide services to other entities

in the future as a result of past transactions. The Director finds that

the proposed definition is substantively identical to the Federal

definition of ``liability'' at 30 CFR 800.23(a).

k. Net worth. Pennsylvania proposes to modify its definition to

mean total assets minus total liabilities and is equivalent to owner's

equity. The Director finds that the proposed definition is identical to

the Federal definition of ``net worth'' at 30 CFR 800.23(a).

l. Parent corporation. Pennsylvania proposes to add this definition

to mean the corporation which directly owns or controls the corporation

which is the applicant. The Director finds that the proposed definition

is substantively identical to the Federal definition of ``parent

corporation'' at 30 CFR 800.23(a).

m. Self-bond. Pennsylvania proposes to revise its definition of

``self-bond'' to mean an indemnity agreement in a sum certain payable

to the Department, executed by the permittee and by each individual and

business organization capable of influencing or controlling the

investment or financial practices of the permittee by virtue of his

authority as an officer or ownership of all or a significant part of

the permittee, and supported by agreements granting the Department a

security interest in real or personal property pledged to secure

performance by the permittee. The proposed State and Federal

definitions of ``self-bond'' are similar with the additional

requirements in the State's rule for indemnification by the controllers

and significant owners of the self-bonded permittee, and for the

pledging of real or personal property collateral to secure the self-

bond. In addition, to those reasons discussed at Finding 1.c., the

State's requirement for collateralized self-bonds serves to provide

security for the self-bonding obligation and elevates the State's

position to that of a secured creditor if there is a bankruptcy of the

self-bonded permittee. Therefore, the Director finds that the State's

revised definition of ``self-bond'' is no less effective than the

corresponding Federal requirements at 30 CFR 800.5(c).

n. Tangible net worth. Pennsylvania proposes to add this definition

to mean net worth minus intangibles such as goodwill and rights to

patents or royalties. The Director finds that the proposed definition

is identical to and no less effective than the Federal definition of

``tangible net worth'' at 30 CFR 800.23(a).

o. Liquidity ratio. Pennsylvania proposes to delete this

definition. Since there is no counterpart Federal definition for

``liquidity ratio,'' the Director finds that the deletion of this

definition does not render the Pennsylvania program less effective than

the Federal requirements at 30 CFR 800.23

p. Quick assets. Pennsylvania proposes to delete this definition.

There is no counterpart Federal definition for ``quick assets.''

Therefore, the Director finds that the deletion of this definition does

not render the Pennsylvania program less effective than the Federal

requirements at 30 CFR 800.23.

q. Retained earnings. Pennsylvania proposes to delete this

definition. Since there is no counterpart Federal definition for

``retained earnings,'' the Director finds that the deletion of this

definition does not render the Pennsylvania program less effective than

the Federal requirements at 30 CFR 800.23.

2. Section 86.159

Pennsylvania is proposing to revise section 86.159 to establish the

procedures and criteria to be used by the regulatory authority in

determining whether a coal mine permittee is eligible to use self-

bonding in lieu of a surety or collateral bond.

The Federal self-bonding rules at 30 CFR 800.23 establish minimum

standards of financial eligibility to self-bond for States that wish to

allow self-bonding. These rules also allow a regulatory authority to

accept the guarantee of a qualified parent corporation for its

subsidiaries. ``States choosing to allow self-bonding may adopt more

detailed rules that reflect the financial structures of the local

industry, if necessary to provide the regulatory authority additional

protection from risk of forfeiture.'' 48 FR 36418, 36419 (August 10,

1983).

a. Section 86.159(a). Pennsylvania proposes in paragraph (a) that

the regulatory authority may accept a self-bond to cover all or part of

the permittee's liabilities arising from coal mining activities. The

State also proposes that an applicant which is a subsidiary may satisfy

the requirements for eligibility to self-bond by relying on its parent

corporation. The corresponding Federal requirements are similar with

the exception of conditions added by the State to address mining

activities that may not be self-bonded such as long-term facilities,

acid mine drainage, and restoration of prime farmland. The Federal

self-bonding rules do not limit self-bond coverage to certain mining

activities. Pennsylvania stated in its May 12, 1990, Pennsylvania

Bulletin that it was difficult to determine an applicant's financial

eligibility to self-bond certain types of liabilities. The acceptance

of a self-bond by a state regulatory authority is discretionary and the

Director finds it is within the State's discretion to exclude certain

liabilities from coverage by a self-bond. The Federal regulation at 30

CFR 773.15 prohibits a regulatory authority from issuing a permit if

the permit applicant is, among other things, in violation of SMCRA or

state and federal laws pertaining to air or water environmental

protection. Pennsylvania's requirement that the applicant must have a

positive compliance history with federal and state laws is not

inconsistent with the Federal regulations. There is also no Federal

counterpart that applicants must pledge collateral (see Finding 1.c.)

and provide required security agreements in order for the State to

allow an applicant to self-bond. However, the Director finds that these

requirements are not inconsistent with the self-bonding regulations at

30 CFR 800.23.

b. Section 86.159 (b) (5), (6), and (c)(4). These sections, which

have no Federal counterparts, are discussed at the Director's Finding

1.c.

c. Sections 86.159 (b) (1), (2), (c) (1), (2), (3), (5), and (6)

and (f). Pennsylvania is proposing that, to be acceptable, the

applicant or its parent corporation must (1) be authorized to do

business in Pennsylvania, (2) designate a suitable agent to receive

service of process, (3) have a history of continuous business

operation, (4) meet certain financial criteria, and (5) submit

financial statements of its most recent three fiscal years and any

completed quarters in the current fiscal year.

The State's proposed amendment at subsection (b)(1) establishes the

requirement that the applicant must be incorporated in or authorized to

do business in Pennsylvania. There is no counterpart Federal

regulation. However, the Director finds that the proposed rule is not

inconsistent with the requirements of SMCRA and no less effective than

the Federal regulations.

The State is proposing at subsection (b)(2) that the applicant

designate suitable agents in Pennsylvania to receive service of suits,

claims, demands and other services of process. Since this provision is

substantively identical to paragraph (b)(1) of 30 CFR 800.23 of the

corresponding Federal rule, the Director finds that it is no less

effective than the Federal rule.

The State proposes at subsection (b)(3) that the applicant's

history of continuous business operation is met if the applicant's

existence is the result of a reorganization, consolidation or merger

involving a company with a history of continuous business operation or

the applicant is a majority-owned subsidiary of a corporation with a

history of continuous business operation. The Federal regulations at 30

CFR 800.23(b) allow an applicant to qualify for a self-bond even if it

did not meet the 5 years of continuous business operation, so long as

its parent corporation did meet the 5-year requirement. Pennsylvania's

approach, of allowing an applicant to rely on its parent's time of

operation, is consistent with 30 CFR 800.23(b). For a complete

discussion of the term ``continuous business operation,'' see the

Director's Finding at 1.c.

Pennsylvania's proposed subsection (c) and the Federal regulations

for financial statements are similar; however, the State's proposed

rule at subsection (c) requires 3 years of audited financial statements

and the Federal regulations require 1 year. Both require the submittal

of unaudited quarters for the current year. Both require that the

audited financial statements must be accompanied by a report prepared

by an independent certified public accountant (CPA) that contains the

accountant's audit or review opinion of the financial statements with

no adverse opinion. In addition, the State's proposed rule requires

that forfeiture of the aggregate of Pennsylvania self-bonds would not

affect its ability to stay in business or endanger cash flow needed for

its current obligations. There are no counterpart Federal regulations

for these proposed requirements; however, they have the effect of

strengthening the proposed self-bonding program and are no less

effective than the Federal regulations. The Director, therefore, finds

that the proposed rule at subsection (c) is no less effective than the

counterpart Federal regulations at 30 CFR 800.23(b)(4).

Pennsylvania is proposing at subsection (f) that the applicant for

self-bonding meet one of the three following financial criteria:

(1) A current rating for its most recent bond issuance of either:

AAA, AA or A as issued by Standard and Poor's Corporation; or Aaa, Aa

or A as issued by Moody's Investor Services;

(2) A tangible net worth of at least 10 million, a ratio of total

liabilities to net worth of 2.5 times or less, and a ratio of current

assets to current liabilities of 1.2 times or greater; or

(3) Fixed assets in the United States of at least 20 million and a

ratio of total liabilities to net worth of 2.5 times or less and a

ratio of current assets to current liabilities of 1.2 times or greater.

The State's proposed rules are essentially the same as the

corresponding Federal regulations at 30 CFR 800.23(b)(3) (i), (ii), and

(iii). In addition to meeting one of the three basic tests, the State's

proposed rules also require the applicant to have a tangible net worth

that is six times its total self-bonds in Pennsylvania and that amounts

to 90 percent of its total assets. This requirement is similar to a

financial assurance requirement of the EPA's regulations for hazardous

waste facilities (47 FR 15032, April 7, 1982). In it preamble, EPA

stated that ``This requirement was included to help ensure

accessibility to funds in the event of bankruptcy or other default.''

There is no counterpart Federal requirement for these additional

tangible net worth components of the basic financial tests in OSM's

regulations at 30 CFR 800.23(b). However, this rule implements the

Pennsylvania statute requiring the same. The rules add the assurance of

the financial stability of the applicant. Therefore, the State's

proposed rules at subsection (f) are no less effective than the Federal

regulations at 30 CFR 800.23(b)(3) (i), (ii), and (iii).

d. Section 86.159(b)(4). Pennsylvania is proposing at subsection

(b)(4) that, in the past 36 months, the applicant has not defaulted on

any payments of dividend or sinking fund installments, lease rentals

and reclamation fees. There are no counterpart Federal regulations.

However, the Director finds that the proposed rule is not inconsistent

with the requirements of SMCRA and no less effective than the Federal

regulations.

e. Section 86.159(d). The Federal regulations at 30 CFR 800.23(f)

allow the regulatory authority to request update information from the

applicant within 90 days after the close of each fiscal year following

the issuance of the self-bond or corporate guarantee. This was intended

to give the regulatory authority flexibility to require additional

information if it believed it was necessary. Pennsylvania has submitted

a similar requirement at subsection (d) requesting some of the

financial information specified in the Federal rule. Since this is

discretionary on the part of the regulatory authority, the Director

finds that the proposed rule is no less effective than the Federal

regulations at 30 CFR 800.23(f).

f. Section 86.159(e). Pennsylvania is proposing at subsection (e)

that if the applicant or the CPA submits false information the

application will be disallowed and render the applicant ineligible to

self-bond. In addition, this section subjects the applicant and the CPA

to criminal penalties for false swearing. There is no direct Federal

counterpart. However, the Federal rules envision that an applicant will

answer truthfully. Therefore, the Director finds that the proposed rule

is not inconsistent with the requirements of SMCRA and the Federal

regulations.

g. Section 86.159(g). The State's proposed rule at subsection (g)

is similar to the Federal regulations at 30 CFR 800.23(b)(4)(i) which

require submittal of an accountant's audit opinion or review opinion on

the financial statements with no adverse opinion. However, the State

has expanded its rule at this section to disqualify an applicant on the

basis of both an adverse opinion and a disclaimer opinion by an

accountant. In addition, an applicant may be determined to be

ineligible to self-bond on the basis of other qualifications in the

opinion expressed by the CPA. The Director finds that the proposed rule

is no less effective than the counterpart Federal regulations at 30 CFR

800.23(b)(4)(i).

h. Section 86.159(h). Pennsylvania is proposing at subsection (h)

that the total value of outstanding plus proposed self-bonds for coal

mining activities may not exceed 25 percent of the applicant's tangible

net worth in the United States. This is similar to the counterpart

Federal rule at 30 CFR 800.23(d). However, the Federal rule also

requires for corporate guarantees that the total amount of the parent

corporation guarantor's present and proposed self-bonds and guaranteed

self-bonds for coal mining activities shall not exceed 25 percent of

the guarantor's net worth in the United States. Under the proposed

Pennsylvania self-bonding rules, the parent corporation is always a

party to the self-bond and is established as a co-indemnitor under the

self-bond. In applying the proposed Pennsylvania rule, an applicant may

rely on its parent's qualifications to be accepted under the self-

bonding rules. If this is so, the parent is thus subject to the 25

percent requirements. The Director finds the proposed rule is no less

effective than the counterpart Federal regulations at 30 CFR 800.23(d).

i. Section 86.159(i). Pennsylvania is proposing at subsection (i)

that the period of liability under a self-bond is determined in

accordance with the existing bonding regulations. Similarly, the

release of a self-bond is to be governed by the existing regulations.

Pennsylvania also proposes that the liability under a self-bond is

terminated upon the Department's approval of alternative bonding

submitted by the applicant. The Director finds the cross-references to

other rules is consistent with the Federal bonding regulations at 30

CFR 800.13 and 800.40 and its replacement provision is similar to and

no less effective than the counterpart Federal provision at 30 CFR

800.30.

j. Section 86.159(j). Pennsylvania's proposed rule at subsection

(j) requires that part of all of the self-bond amount be collateralized

by the permittee's pledge of security interests in real or personal

property. There are no counterpart Federal requirements of this kind in

the Federal self-bonding program. These regulations implement

Pennsylvania's statute requiring the same. Unlike collateral bonds,

these security interests for self-bonds are not always the full amount

of the bond. The amount of collateral required by the State's proposed

rules is determined on a sliding scale of liability and net worth. This

collateral is in addition to all the self-bonding rules. Also, as

discussed at the Director's Finding 1.c., the requirement that the

applicant submit a security interest to Pennsylvania is an expression

of confidence of the company that it expects to be in existence for the

term of the permit and to have the security interest which was

proffered to the State released. Therefore, the Director finds that the

State's proposal to require full or partial collateral is no less

effective than the Federal regulations.

k. Section 86.159(k) (1), (2) and (3). Proposed subsections (k)(1)

through (k)(3) provide the Department with the authority to require

appropriate forfeiture terms and conditions within the indemnity

agreement that are in addition to the general forfeiture requirements

of Pennsylvania's bonding program.

Pennsylvania proposes a subsection (k)(1) that the self-bond will

be forfeited if 90 days after the Department is informed or determines

that the applicant is no longer eligible to self-bond and within the

90-day period the applicant fails to submit to the Department

acceptable security as provided for in subchapter F to cover its self-

bonded liability. The Federal rules at 30 CFR 800.23(g) contain a

similar requirement with the statement that if the permittee fails to

post an adequate substitute bond the provisions of 30 CFR 800.16(e)

shall apply. Under 30 CFR 800.16(e) the operator would have to cease

coal extraction and immediately begin reclamation operations. At

section 86.151(h) one of the requirements is that the applicant

complete the reclamation plan. At section 86.159(k)(2) liability under

the self-bond is conditioned on the applicant complying with the

various environmental statutes and regulations including Pennsylvania's

Surface Mining Conservation and Reclamation Act. This obligation also

falls upon the parent who under section 86.159(l)(2) is co-indemnitor

under the self-bond. This along with the requirement that the self-bond

becomes due and payable upon default is consistent with the Federal

regulations at 30 CFR 800.23(e)(4), which require the applicant, parent

or non-parent corporate guarantor to complete reclamation or to pay

costs of reclamation. Subsection (k)(2) also requires the applicant or

its parent to notify Pennsylvania if there is a material adverse change

in its financial condition. The Federal regulations at 30 CFR 800.23(g)

also require a similar notification concerning the change in financial

condition. Therefore, the Director finds that the proposed amendment is

no less effective than 30 CFR 800.23 (e)(4) and (g).

At subsection (k)(3) Pennsylvania specifies conditions that relate

to performance under the mining permit and Pennsylvania mining statutes

and regulations and certain commercial lending based criteria relative

to the value of the underlying pledged assets. There are no counterpart

Federal regulations. However, the Director finds that the proposed

rules are not inconsistent with SMCRA and no less effective than the

Federal regulations.

l. Section 86.159(l). Pennsylvania is proposing that the applicant

be a party to the self-bond, which is consistent with the definition of

self-bond at 30 CFR 800.5. In addition, at subsection (l)(2)

Pennsylvania is requiring that all parent corporations be a party to

the self-bond whenever its subsidiary is an applicant for a self-bond.

This is different than the Federal rules at 30 CFR 800.23(e) which only

require a parent to be a party to the bond when it is a parent

corporation guarantor. Nonetheless, the Director finds this requirement

will reduce the risk of a bond forfeiture and therefore finds it no

less effective than 30 CFR 800.23(e)(1).

The Federal regulations at 30 CFR 800.23(e)(2) provide signature

requirements for corporate indemnity agreements as well as

authorizations and affidavits to assure a corporation is bound to the

terms of the agreement. The Federal regulations require that two

authorized corporate officers for the applicant as well as the parent

corporation execute the agreements; whereas the State's rule does not

require two signatures of all the indemnitors. In the preamble to the

final self-bonding rules (48 FR 36418, August 10, 1983), OSM explained

in response to a comment that ``OSM does not consider it a burden on

the corporation to obtain the signatures of two corporate officers on

the indemnity agreement. For such an infrequent and important action,

the approval of two corporate officers will better assure that the

corporation and OSM are protected from possible unauthorized actions of

an individual. This requirement is retained.'' The Federal regulations

require an affidavit from the corporation(s) certifying that entering

into the indemnity agreement is valid under all applicable Federal and

State laws. Pennsylvania lacks this requirement for all of its

indemnitors. In addition, this section of the Federal regulations also

requires that the signatories provide the regulatory authority with

documents that evidence their authority to bind the corporation (e.g.

board of directors resolutions) and authorization for the parent

corporation to enter into the indemnity agreement. Again, Pennsylvania

does not require this. Even though the State requires the applicant and

the parent to be co-indemnitors under the self-bond, the Director finds

that the proposed rule is less effective than the Federal rule because

it lacks all the requirements discussed above. Accordingly, the

Director is requiring that Pennsylvania amend its program to be no less

effective than 30 CFR 800.23(e)(2).

Finally, Pennsylvania at subsection 86.159(1)(3) requires each

person with a beneficial interest in a partnership, joint venture or

syndicate to be a party and co-indemnitor under the self-bond. This is

substantively identical to the Federal requirement at 30 CFR

800.23(e)(3) and is, therefore, no less effective than the Federal

regulation.

m. Section 86.159(m). Pennsylvania proposes at subsection (m) that

each indemnitor under the self-bond shall be jointly and severally

liable. As the proposed amendment is substantively identical to

language found at 30 CFR 800.23(e)(1), the Director finds it no less

effective than the Federal rule.

n. Section 86.159(n). Pennsylvania is proposing at subsection (n)

the types of security interests that may be used to secure the self-

bond. In addition, this section sets out the standard the Department

will use in determining the acceptability of the security interest

being pledged. There are no counterpart Federal regulations. However,

the Director finds the proposed rule is not inconsistent with the

requirements of SMCRA and no less effective than the Federal

regulations.

o. Section 86.159(o). Pennsylvania is proposing at subsection (o)

that during the period of the self-bond and until released in writing

by the Department, the parties to the self-bond who are indemnitors may

not take action which would adversely affect the Commonwealth's rights,

title or interest in the security interests pledged to secure the self-

bond. This proposed rule provides for default if the applicant takes

action that would reduce the value of the pledged assets. There are no

counterpart Federal regulations. However, this provision provides

protection for Pennsylvania's security interests, hence the Director

finds the proposed rule is not inconsistent with the requirements of

SMCRA and no less effective than the Federal regulations.

p. Section 86.159(p). Pennsylvania proposes at section (p) that in

addition to the indemnification and security required in subsection

(j), the Department may require a third-party guarantee of an

applicant's self-bond. A third-party guarantor shall guarantee and

become surety for the performance of the parties who are indemnitors

under the self-bond required by subsection (j). The guarantor must

submit a perfected security interest that is acceptable to

Pennsylvania. It should be noted that these third-party guarantors

under the Pennsylvania program are not the same as a non-parent

corporate guarantor under 30 CFR 800.23(c)(2), since the applicant and/

or its parent must still meet the financial qualification regardless of

any third-party guarantors. There are no counterpart Federal

regulations. However, the Director finds the proposed rule is not

inconsistent with the requirements of SMCRA and no less effective than

the Federal regulations.

q. Section 86.159(q). Pennsylvania is proposing at subsection (q)

that when the Department determines that an event of default or

forfeiture under the self-bond has occurred, the determination shall

also constitute a determination of the applicant's inability to self-

bond. There are no counterpart Federal self-bonding regulations.

However, the Director finds that the provisions of the proposed rule

are not inconsistent with the bonding requirements under 30 CFR Part

800.

r. Section 86.159(r). Pennsylvania proposes at subsection (r) that,

at the request of the applicant, the Department will maintain the

confidentiality of the applicant's financial information and the terms

and the conditions of the security interests unless it is allowed to be

disclosed under other laws. There is no comparable Federal counterpart.

These regulations implement Pennsylvania's statute at 52 P.S.

Secs. 1396.4 and 1406.6, which prohibit such disclosure. Therefore, the

Director finds that the rule is not inconsistent with the requirements

of SMCRA and the Federal regulations.

s. Section 86.159(s). Pennsylvania is proposing at subsection (s)

that applications for a self-bond and each annual update of a self-bond

shall be accompanied by a nonrefundable fee in the amount of $900.

There are no counterpart Federal regulations. However, in a comparable

Federal rule at 30 CFR 777.17, permit fees are allowed so long as they

do not exceed the costs to the regulatory authority. Pursuant to the

October 10, 1987, Pennsylvania Bulletin, Pennsylvania stated that the

$900 fee was needed to cover the costs of reviewing and verifying the

application and to obtain the services of an outside consultant to

analyze the applicant's eligibility or continuing eligibility.

Therefore, the Director finds that the fee is reimbursement of the

costs to Pennsylvania and finds the proposed rule is not inconsistent

with SMCRA and the Federal regulations.

t. Section 86.159(t). Proposed subsection (t) establishes the

regulatory authority of the Department to seek remedies against a

permittee or applicant apart from those specifically set forth in the

proposed self-bonding rules. There are no counterpart Federal

regulations. However, it is not inconsistent with SMCRA and the Federal

regulations because it clarifies that the remedies under SMCRA are not

the only ones available to Pennsylvania.

u. Section 86.166(b). Pennsylvania is revising this paragraph to

correct the rule reference concerning release of bonds from ``Part 4 of

this subchapter'' to ``86.170-86.173 (relating to release of bonds).''

The Director finds that this revision is nonsubstantive in nature and

will not render the Pennsylvania program inconsistent with the

requirements of SMCRA and the Federal regulations.

v. Section 86.166(c). Pennsylvania prohibited a permittee from

replacing its existing bond with a self-bond. Pennsylvania is now

proposing to delete this prohibition. Since the corresponding Federal

rule at 30 CFR 800.30(a) allows permittees to replace existing bonds

with other bonds that provide equivalent coverage, the Director finds

that the revised State rule is no less effective than the Federal rule.

IV. Summary and Disposition of Comments

Public Comments

The Director solicited public comments and provided an opportunity

for a public hearing on the proposed amendment. No public comments were

received, and because no one requested an opportunity to testify at a

public hearing, no hearing was held.

Agency Comments

Pursuant to 30 CFR 732.17(h)(ii)(i), the Director solicited

comments from various Federal and State agencies with an actual or

potential interest in the Pennsylvania program. The Department of

Labor, Mine Safety and Health Administration (MSHA), commented that the

proposed amendment would have no effect on MSHA operations or

regulations. The Department of Agriculture, Soil Conservation Service,

stated that the proposed changes would not have any significant effects

on the environmental integrity of the regulations. The Department of

the Interior, Bureau of Mines, and the U.S. Army Corps of Engineers

responded that they had no comments.

Environmental Protection Agency (EPA) Concurrence

Pursuant to 30 CFR 732.17(h)(11)(ii), OSM is required to obtain the

written concurrence of the EPA with respect to those provisions of the

proposed program amendment that relate to air or water quality

standards promulgated 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 Pennsylvania proposed to make in this

amendment pertain to air or water quality standards. Therefore, OSM did

not request EPA's concurrence.

Pursuant to 30 CFR 732.17(h)(11)(i), OSM solicited comments on the

proposed amendment from EPA (Administrative Record No. PA 823.01). The

EPA responded that it concurred with the proposed amendment.

V. Director's Decision

Based on the above findings, the Director approves the proposed

amendment as submitted by Pennsylvania on May 11, 1993, and clarified

on February 17, 1994. As discussed at Finding 2.1., the Director finds

that, for the most part, the Pennsylvania program does not have a

counterpart to the Federal rules at 30 CFR 800.23(e)(2). The Director

is, therefore, requiring Pennsylvania to further amend its program to

correct the identified deficiencies.

In accordance with 30 CFR 732.17(f)(1), the Director is also taking

this opportunity to clarify in the required amendment section at 30 CFR

938.16 that, within 60 days of the publication of this final rule,

Pennsylvania must either submit a proposed written amendment, or a

description of an amendment to be proposed that meets the requirements

of SMCRA and 30 CFR Chapter VII and a timetable for enactment that is

consistent with Pennsylvania's established administrative or

legislative procedures.

The Federal regulations at 30 CFR Part 938 codifying decisions

concerning the Pennsylvania program are being amended to implement this

decision. This final rule is being made effective immediately to

expedite the State program amendment process and to encourage States to

conform their programs with the Federal standards without undue delay.

Consistency of State and Federal standards is required by SMCRA.

For administrative reasons, the Director is reiterating the removal

of required amendments (i), (j), and (k) as set forth in 57 FR 48733

(October 28, 1992).

Effect of the Director's Decision

Section 503 of SMCRA provides that a State may not exercise

jurisdiction under SMCRA unless the State program is approved by the

Secretary. Similarly, 30 CFR 732.17(a) requires that any alteration of

an approved State program be submitted to OSM for review as a program

amendment. Thus any changes to the State program are not enforceable

until approved by OSM. The Federal regulations at 30 CFR 732.17(g)

prohibit any unilateral changes to approved State programs. In the

oversight of the Pennsylvania program, the Director will recognize only

the statutes, regulations and other materials approved by him, together

with any consistent implementing policies, directives and other

materials, and will require the enforcement by Pennsylvania of only

such provisions.

VI. Procedural Determinations

Executive Order 12866

This rule is exempted from review by the Office of Management and

Budget under Executive Order 12866.

Executive Order 12778

The Department of the Interior has conducted the reviews required

by section 2 of Executive Order 12778 and has determined that, to the

extent allowed by law, this rule meets the applicable standards of

subsections (a) and (b) of that section. However, these standards are

not applicable to the actual language of State regulatory programs and

program amendments since each such program is drafted and promulgated

by a specific State, not by OSM. Under sections 503 and 505 of SMCRA

(30 U.S.C. 1253 and 1255) and 30 CFR 730.11, 732.15 and 732.17(h)(10),

decisions on proposed State regulatory programs and program amendments

submitted by the States must be based solely on a determination of

whether the submittal is consistent with SMCRA and its implementing

Federal regulations and whether the other requirements of 30 CFR parts

730, 731 and 732 have been met.

National Environmental Policy Act

No environmental impact statement is required for this rule since

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 the Office of Management and Budget under the

Paperwork Reduction Act, 44 U.S.C. 3507 et seq.

Regulatory Flexibility Act

The Department of the Interior has determined 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

corresponding 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. Accordingly, this rule will ensure that existing requirements

previously promulgated by OSM will be implemented by the State. In

making the determination as to whether this rule would have a

significant economic impact, the Department relied upon the data and

assumptions for the corresponding Federal regulations.

List of Subjects in 30 CFR Part 938

Intergovernmental relations, Surface mining, Underground mining.

Dated: July 13, 1994.

Ronald C. Recker,

Acting Assistant Director, Eastern Support Center.

For the reasons set forth in the preamble, Title 30, Chapter VII,

Subchapter T of the Code of Federal Regulations is amended as set forth

below:

PART 938--PENNSYLVANIA

1. The authority citation for Part 938 continues to read as

follows:

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

2. Section 938.15 is amended by adding paragraph (bb) to read as

follows:

Sec. 938.15 Approval of regulatory program amendments.

* * * * *

(bb) The following amendment to the Pennsylvania regulatory

program, as submitted to OSM on May 11, 1993, and clarified by letter

dated February 17, 1994, is approved, except as noted herein, effective

July 20, 1994. Revisions to Title 25, Pennsylvania Code Sections

86.142, 86.159, and 86.166 concerning self-bonding provisions, except

to the extent that Section 86.159(l)(2) does not contain all the

requirements for the execution of indemnity agreements.

3. In Sec. 938.16, paragraphs (i), (j), and (k) are removed and

reserved and a new paragraph (nnn) is added to read as follows:

Sec. 938.16 Required regulatory program amendments.

* * * * *

(nnn) By September 19, 1994, Pennsylvania shall submit either a

proposed amendment or a description of an amendment to be proposed,

together with a timetable for adoption, to revise section 86.159(l)(2)

to require two officer signatures for each corporate indemnitor, an

affidavit from the corporation(s) certifying that entering into the

indemnity agreement is valid under all applicable Federal and State

laws, and documents that evidence the authority of the signatories to

bind the corporation and an authorization by the parent corporation to

enter into the indemnity agreement.

[FR Doc. 94-17633 Filed 7-19-94; 8:45 am]

BILLING CODE 4310-05-M