The Kentucky Bond Pool was created by law in 1986. It is an alternative bonding program available to Kentucky's coal industry for meeting the bonding requirements of KRS 350.060(11).
Overview
The heart of the program is a special bond pool fund into which all members of the pool pay membership and tonnage fees. Participation is strictly voluntary and is only available to coal companies that qualify. Qualification is based on mining experience, reclamation record, bond release history and financial standing. Preparation plants, tipples and loading facilities are not eligible for coverage under the Kentucky Bond Pool. The bond pool does not provide bonding for supplemental assistance and is not liable for damage caused by subsidence.
A bond pool member posts a limited, permit-specific bond for each permit that is fully released at the completion of Phase I reclamation. During Phase I, a permit is covered by both the permit-specific bond and the bond pool. After Phase I, a permit is covered only by the bond pool.
The Kentucky Bond Pool is governed by Kentucky statutes KRS 350.700 through 350.755 and by administrative regulation at 405 KAR 10:200. Click here for information on KRS and KAR's.
Bond Pool Commission
The Kentucky Bond Pool Commission is the key decision maker for the bond pool. The commission reviews all applications for membership, determines eligibility, grants and denies memberships, assigns and revises membership ratings and revokes memberships when necessary. It also suspends or reinstates tonnage fees, secures audits and actuarial studies, authorizes expenditures and reports to the governor.
The commission consists of seven members appointed by the governor. Four members are small coal operators (produce less than 300,000 tons per year), including the chairman and one other member of the Small Coal Operators Advisory Council established at KRS 350.260. The other members include a large coal operator, a certified public accountant and the secretary of the Environmental and Public Protection Cabinet (EPPC). An EPPC employee serves as bond pool administrator and assists the commission.
Qualifications
Any permittee of a coal mining operation located in Kentucky who meets the criteria in KRS 350.720 and in 405 KAR 10:200 is eligible to participate in the bond pool. Companies may apply to the commission for membership. If membership approval is granted, the commission will assign a membership rating of A, B or C. These ratings are described below:
- "A" Rating--For at least five of the seven years immediately preceding the membership application, the applicant, or 50 percent of the applicant's ownership, has held a permit issued by the EPPC to conduct coal mining operations in Kentucky and has exhibited an excellent compliance record as defined by regulation at 405 KAR 10:200, Section 7(1).
- "B" Rating--For at least five of the seven years immediately preceding the membership application, the applicant, or 50 percent of the applicant's ownership, has held a permit issued by the EPPC to conduct coal mining operations in Kentucky and has exhibited an acceptable compliance record as defined by 405 KAR 10:200, Section 7(2).
- "C" Rating--For at least three of the five years immediately preceding the membership application, the applicant, or 50 percent of the applicant's ownership, has held a permit issued by the EPPC to conduct coal mining operations in Kentucky and has exhibited an acceptable compliance record as defined by 405 KAR 10:200, Section 7(2).
Fees Paid to Kentucky Bond Pool Fund
An application fee of $100 is charged. If the application is approved, the application fee is applied to the membership fee described below:
Each approved applicant, prior to admission into the bond pool, must pay a one-time membership fee as follows:
"A" Rating -- $1,000
"B" Rating -- $2,000
"C" Rating -- $2,500
Once admission to the program has been finalized, each member, regardless of rating, must pay a tonnage fee for the coal mined from each permit covered under the pool. Every permitted site not disturbed prior to membership must be included in the bond pool. Tonnage fees, which are set by recommendations from the most recent actuarial study, are paid monthly and are based on actual coal production. Current rates are five cents per ton for surface-mined coal and one cent per ton for underground-mined coal. When the Kentucky Bond Pool Fund reaches $17.4 million, the assessment of tonnage fees will be suspended for all members who have made 36 or more monthly payments to the fund. If the fund level drops to $12.3 million, the tonnage fee requirement will be reinstated for all members.
Permit-Specific Bond, Required Bond Amounts and Bond Pool Liability
Bond pool members must post a permit-specific bond for each permit obtained from the EPPC. This bond is based on the membership rating assigned by the bond pool commission and is held until the completion of Phase I reclamation. The permit-specific bond is computed at the following rates for each acre, or fraction thereof, of surface disturbance in the proposed permit area:
"A" Rating -- $500
"B" Rating -- $1,500
"C" Rating -- $2,000
This permit-specific bond must be increased by $1,500 for each acre, or fraction thereof, of prime farmland in the permitted area.
The permit-specific bond must be submitted on the Division of Mine Reclamation and Enforcement's regular performance bond form (SME-42) and must be either a surety bond or collateral bond. Collateral bonds may include cash deposits, certificates of deposit or letters of credit. The member's permit-specific bond is released in its entirety at Phase I bond release.
Like any other permit, the total bond amount required at any time for a permit covered by the bond pool is determined by the Division of Mine Permits based on site-specific criteria and without regard to the permittee's membership in the pool. During Phase I, the pool is responsible for the difference between the required bond amount and the member's permit-specific bond amount. At Phase I bond release, the Division of Mine Reclamation and Enforcement adjusts the required bond amount; the member's permit-specific bond is fully released. The pool is then responsible for the required bond amount through Phase II and, as again adjusted by the Division of Mine Reclamation and Enforcement, through Phase III until final bond release.
If bond forfeiture occurs, monies from the member's permit-specific bond (if not yet released), supplemented by monies from the fund (up to the limit of the pool's responsibility), are used to reclaim the mine site.
Member Compliance Requirements
Each member must report coal production on a monthly basis, using forms provided by the bond pool. Payment of the appropriate tonnage fees must accompany each report. A 5 percent penalty is assessed for all late reports or payments. If a member becomes more than 30 days in arrears with any tonnage fee payment, the administrator will notify the member that the delinquent payment must become current within 30 days or membership revocation will occur. Overpayments are credited to the next monthly payment.
Each member must continue to meet the initial eligibility requirements throughout its membership to remain in the program. If a member is issued a cessation order for failure to abate a violation, the commission may revoke the membership. If a member is issued two failure-to-abate cessation orders for a contemporaneous reclamation violation or is found to have demonstrated a pattern of violation pursuant to KRS 350.028(4) or 350.465(3)(f), its membership is automatically revoked without action by the commission. Upon revocation of membership, the EPPC will order the member to cease mining on all permits until alternate bond coverage is obtained.
For more information about the Kentucky Bond Pool program, contact:
Corey.Sanders@ky.gov Bond Pool Administrator
Division of Mine Reclamation and Enforcement
#2 Hudson Hollow Rd
Frankfort, KY 40601
Phone 502-564-2340
Fax 502-564-5848
