Bond Requirements

PURPOSE: This rule sets forth requirements for bonding of surface coal mining and reclamation operations pursuant to sections 444.830, 444.910 and 444.950, RSMo. (1) Definitions. (A) Increment means an area that is covered by a single bond and that is a portion of a permit area. (B) Open pit means that area between the crest of the highwall to the toe of the spoil. (C) Personal bond means an indemnity agreement is a sum certain executed by the permittee as principal which is supported by negotiable certificates of deposit or irrevocable letters of credit which may be drawn upon by the director if reclamation is not completed or if the permit is revoked prior to completion of reclamation. (D) Phase I bond means a performance bond conditioned on the release of sixty percent (60%) of the bond upon the successful completion of Phase I reclamation of a permit area in accordance with the approved reclamation plan. (E) Phase II bond means performance bond conditioned on the release of Phase II liability. (F) Phase III bond means a performance bond conditioned on the release of Phase III liability. (G) Self-bonding means an indemnity agreement in a sum certain executed by the applicant or by the applicant and any corporate guarantor and made payable to Missouri, with or without separate surety. (H) Surety bond means an indemnity agreement in a sum certain payable to the regulatory authority, executed by the permittee as principal and which is supported by the performance guarantee of a corporation licensed to do business as a surety in the state where the operation is located. (2) Requirement to File a Bond. (A) After an application for a permit to conduct surface coal mining and reclamation operations has been approved under 10 CSR 40-6, but before the permit is issued, the applicant shall file with the director a performance bond payable to the State of Missouri. The performance bond shall be conditioned upon the faithful performance of all the requirements of the Surface Coal Mining Law, the regulatory program, the permit and the reclamation plan, and bonded liability shall continue until reclamation is completed and approved by the director. In the event of forfeiture, the amount remaining on the bond may be used to complete reclamation in any location in the permit area. (B) The applicant shall file, with the approval of the director, a bond or bonds under one (1) of the following schemes to cover the bond amounts for the permit area as determined in accordance with 10 CSR 407.011(4): 1. A performance bond or bonds for the entire permit area; 2. A cumulative bond schedule and the performance bond required for full reclamation of the initial area to be disturbed; or 3. An incremental bond schedule and the performance bond required for the first increment in the schedule. (3) Incremental Bonding. (A) The applicant may file either a bond sufficient to cover the entire permit area or a bond for the increment in which the applicant will initiate and conduct surface coal mining and reclamation operations. Disturbance is prohibited on succeeding increments, underground shafts, tunnels, or operations prior to acceptance of bond. (B) An operator shall not disturb acreage outside the boundary of a bonded increment until s/he has submitted to the director a bond for the proposed increment and has received notification from the director that the bond has been accepted. (C) Independent increments shall be of sufficient size and configuration to provide for efficient reclamation operations should reclamation by the director become necessary pursuant to 10 CSR 40-7.031(3). (D) The operator shall submit an incremental bonding schedule and identify the initial and successive areas or increments for bonding on the permit application map submitted for approval as provided in the application and shall specify the bond amount to be provided for each area or increment. (4) Bond Amounts. (A) The amount of the bond required for each bonded area shall: 1. Be determined by the director; 2. Depend upon the requirements of the approved permit and reclamation plan; 3. Reflect the probable difficulty of reclamation, giving consideration to such factors as topography, geology, hydrology, and revegetation potential; and 4. Be based on, but not limited to, the estimated cost submitted by the permit applicant. (B) The amount of the bond shall be sufficient to assure the completion of the reclamation plan if the work has to be performed by the director in the event of forfeiture, and in no case shall the total bond initially posted for the entire area under one permit be less than ten thousand dollars ($10,000). (5) Changing Bond Amounts. (A) The amount of the bond required and the terms of the acceptance of the applicant’s bond shall be adjusted by the director from time-to-time as the area requiring bond coverage is increased or decreased or where the cost of future reclamation changes. The director may specify periodic times or set a schedule for reevaluating and adjusting the bond amount to fulfill this requirement. (B) The director shall— 1. Notify the permittee and the surety, bank, savings and loan company, or thirdparty guarantor of any proposed adjustment to the bond amount; and 2. Provide the permittee an opportunity for an informal conference on the adjustment. (C) A permittee may request reduction of the amount of the performance bond upon submission of evidence to the director proving that the permittee’s method of operation or other circumstances reduces the estimated cost for the regulatory authority to reclaim the bonded area. Bond adjustments which involve undisturbed land or revision of the cost estimate of reclamation are not considered bond releases subject to the procedures of 10 CSR 40-7.021(3). (D) In the event that an approved permit is revised in accordance with 10 CSR 406.090(4), the director shall review the bond for adequacy and, if necessary, shall require adjustment of the bond to conform to the permit as revised. and Reclamation Operations (6) Types of Bonds. The director may accept surety bonds, personal bonds and self-bonding. (A) Surety bonds shall be subject to the following conditions: 1. The surety bond shall be submitted on a form provided by the director; 2. No bond of a surety company will be accepted unless the bond shall not be cancellable for any reason whatsoever, including, but not limited to, nonpayment of premium, bankruptcy or insolvency of the permittee or issuance of notices of violations or cessation orders and assessment of penalties with respect to the operations covered by the bond, except that surety bond coverage for lands not disturbed may be cancelled if the surety provides written notification and the director is in agreement. The director shall advise the surety, within thirty (30) days after receipt of a notice to cancel bond, whether the bond may be cancelled on an undisturbed area; 3. A surety company’s bond shall not be accepted in excess of ten percent (10%) of the surety company’s capital surplus account as shown on a balance sheet certified by a certified public accountant; 4. The total amount of the bonds issued by a surety on behalf of any permittee shall not exceed thirty percent (30%) of the surety company’s capital surplus account as shown on a balance sheet certified by a certified public accountant; 5. The surety shall be licensed to conduct a surety business in Missouri; 6. Both the surety and the permittee shall be primarily liable for completion of reclamation, with the surety’s liability being limited to the penalty amount of the bond; 7. The bond shall provide that— A. The surety will give prompt notice to the permittee and the director of any notice received or action filed alleging the insolvency or bankruptcy of the surety or alleging any violations of regulatory requirements which could result in suspension or revocation of the surety’s license to do business; and B. In the event the surety becomes unable to fulfill its obligations under the bond for any reason, notice shall be given immediately to the permittee and the director; 8. The bond shall provide a mechanism for a surety company to give prompt notice to the director and the permittee of any action filed alleging the insolvency or bankruptcy of the surety company, or the permittee, or alleging any violations which would result in suspension or revocation of the surety license to do business. Upon the incapacity of a surety by reason of bankruptcy or insolvency, or suspension or revocation of its license, the permittee shall be deemed to be without bond coverage in violation of subsection (2)(A) and shall promptly notify the director. The director, upon notification of the surety’s bankruptcy or insolvency, or suspension or revocation of its license, shall issue a notice of violation against any operator who is without bond coverage. The notice shall specify a reasonable period to replace bond coverage, not to exceed ninety (90) days. During this period, the director or his/her authorized agent shall conduct weekly inspections to ensure continuing compliance with other permit requirements, the regulatory program and the law. The notice of violation, if abated within the period allowed, shall not be counted as a notice of violation for purposes of determining a pattern of willful violation under 10 CSR 40-7.031(1)(F)2. and need not be reported as a past violation in permit applications under 10 CSR 40-6.030(2) or 10 CSR 40-6.100(2). If a notice of violation is not abated in accordance with the schedule, a cessation order shall be issued requiring immediate compliance with 10 CSR 403.150(4). The operator shall also immediately begin to conduct reclamation operations in accordance with the reclamation plan. Mining operations shall not resume until the director has determined that an acceptable bond had been posted; and 9. The bond shall be forfeitable upon revocation of the underlying permit. (B) Personal bonds secured by certificates of deposit shall be subject to the following conditions: 1. The bonds shall be submitted on a form provided by the director; 2. The certificate(s) shall be in the amount of the bond or in an amount greater than the bond and shall be made payable to or assigned to the State of Missouri, both in writing and upon the records of the bank or savings and loan company issuing the certificates, and shall be automatically renewable at the end of the term of the certificate. If assigned, banks and savings and loan companies issuing the certificate(s) waive all rights of set off or liens against the certificate(s); 3. Interest on the certificate of deposit shall be paid to the permittee; 4. No single certificate of deposit shall exceed the sum of one hundred thousand dollars ($100,000) nor shall any permittee submit certificates of deposit aggregating more than one hundred thousand dollars ($100,000) or the maximum insurable amount as determined by the Federal Deposit Insurance Corporation from a single bank or savings and loan company. The issuing bank or savings and loan company must be insured by the Federal Deposit Insurance Corporation; 5. The certificate of deposit shall be kept in the custody of the State of Missouri until the bond is released by the director; 6. The bank or savings and loan company issuing the certificate(s) of deposit for bonding purposes shall give prompt notice to the director and the permittee of any insolvency or bankruptcy of the bank or savings and loan company; 7. The bond shall provide a mechanism for a bank or savings and loan company to give prompt notice to the director and the permittee of any action filed alleging the insolvency or bankruptcy of the bank, savings and loan company or the permittee, or alleging any violations which would result in suspension or revocation of the bank or savings and loan company charter or license to do business. Upon the incapacity of any bank or savings and loan company by reason of insolvency or bankruptcy, or suspension or revocation of its charter or license the permittee shall be deemed to be without bond coverage in violation of subsection (2)(A). The director, upon notification of the bank’s or savings and loan company’s bankruptcy or insolvency, or suspension or revocation of its charter or license, shall issue a notice of violation against any operator who is without bond coverage. The notice shall specify a reasonable period to replace bond coverage, not to exceed ninety (90) days. During this period, the director or his/her authorized agent shall conduct weekly inspections to ensure continuing compliance with other permit requirements, the regulatory program and the law. A notice of violation, if abated within the period allowed, shall not be counted as a notice of violation for purposes of determining a pattern of willful violation under 10 CSR 407.031(1)(F)2. and need not be reported as a past violation in permit applications under 10 CSR 40-6.030(2) or 10 CSR 40-6.100(2). If a notice of violation is not abated in accordance with the schedule, a cessation order shall be issued requiring immediate compliance with 10 CSR 40-3.150(4). The operator shall also immediately begin to conduct reclamation operations in accordance with the reclamation plan. Mining operations shall not resume until the director has determined that an acceptable bond has been posted; and 8. The bond shall be forfeitable upon revocation of the underlying permit. (C) Personal bonds secured by letters of credit shall be subject to the following conditions: 1. The bond and the letters of credit shall be submitted on forms provided by the director; 2. The letter of credit shall be no less than the face amount of the bond and shall be irrevocable. A letter of credit used as security in areas requiring continuous bond coverage shall be forfeited and shall be collected by the director if not replaced by other suitable bond or letter of credit at least thirty (30) days before its expiration date; 3. The beneficiary of the letter of credit shall be the State of Missouri; 4. The letter of credit shall be issued by a bank authorized to do business in the United States. If the issuing bank is located in another state, a bank located in Missouri must confirm the letter of credit. Confirmations shall be irrevocable and on a form provided by the director; 5. The letter of credit shall be governed by Missouri law. The Uniform Customs and Practice for Documentary Credits, fixed by the International Chamber of Commerce, shall not apply; 6. The letter of credit shall provide that the director may draw upon the credit by making a demand for payment, accompanied by his/her statement that the commission has declared the permittee’s bond forfeited; 7. The issuer of a letter of credit or confirmation shall warrant that the issuance will not constitute a violation of any statute or regulation which limits the amount of loans or other credits which can be extended to any single borrower or customer or which limits the aggregate amount of liabilities which the issuer may incur at any one (1) time from issuance of letters of credit and acceptances; 8. The bank issuing the letter(s) of credit for bonding purposes shall give prompt notice to the director and the permittee of any insolvency or bankruptcy of the bank; 9. The bond shall provide a mechanism for a bank to give prompt notice to the director and the permittee of any action filed alleging the insolvency or bankruptcy of the bank or the permittee, or alleging any violations which would result in suspension or revocation of the bank’s charter or license to do business. Upon the incapacity of any bank by reason of insolvency or bankruptcy, or suspension or revocation of its charter or license, the permittee shall be deemed to be without bond coverage in violation of subsection (2)(A). The director, upon notification of the bank’s bankruptcy or insolvency, or suspension or revocation of its charter or license, shall issue a notice of violation against any operator who is without bond coverage. The notice shall specify a reasonable period to replace bond coverage, not to exceed ninety (90) days. During this period, the director or his/her authorized agent shall conduct weekly inspections to ensure continuing compliance with other permit requirements, the regulatory program and the law. A notice of violation, if abated within the period allowed, shall not be counted as a notice of violation for purposes of determining a pattern of willful violation under 10 CSR 40-7.031(1)(F)2. and need not be reported as a past violation in permit applications under 10 CSR 406.030(2) or 10 CSR 40-6.100(2). If a notice of violation is not abated in accordance with the schedule, a cessation order shall be issued requiring the immediate compliance with 10 CSR 40-3.150(4). The operator shall also immediately begin to conduct reclamation operations in accordance with the reclamation plan. Mining operations shall not resume until the director has determined that an acceptable bond has been posted; and 10. The bond shall be forfeitable upon revocation of the underlying permit. (D) Self-Bonding. 1. Definitions. For the purposes of this section only— A. Current assets means cash or other assets or resources which are reasonably expected to be converted to cash or sold or consumed within one (1) year or within the normal operating cycle of the business; B. Current liabilities means obligations which are reasonably expected to be paid or liquidated within one (1) year or within the normal operating cycle of the business; C. Fixed assets means plant and equipment, but does not include land or coal in place; D. Liabilities means obligations to transfer assets or provide services to other entities in the future as a result of past transactions; E. Net worth means total assets minus total liabilities and is equivalent to owners’ equity; F. Parent corporation means a corporation which owns or controls the applicant; and G. Tangible net worth means net worth minus intangibles such as goodwill and rights to patents or royalties. 2. The director may accept a self-bond if the following conditions are met by the applicant or its parent corporation guarantor: A. The applicant designates an agent for service of process in the state; B. The applicant has been in continuous operation as a business entity the five (5) years immediately preceding the application. The director may accept the bond of a joint venture with fewer than five (5) years of continuous operation if each member has been in continuous operation for the five (5) years preceding the application; C. The applicant submits financial information in sufficient detail to show one (1) of the following: (I) The applicant has a current Moody’s Investor Service or Standard and Poor’s rating for its most recent bond issuance of A or higher; (II) The applicant has a tangible net worth of at least ten (10) million dollars , a ratio of total liabilities to net worth of two and one-half (2 1/2) times or less and a ratio of current assets to current liabilities of 1.2 times or greater; or (III) The applicant’s fixed assets in the United States total at least twenty (20) million dollars and the applicant has a ratio of total liabilities to net worth of two and onehalf (2 1/2) times or less and a ratio of current assets to current liabilities of 1.2 times or greater; and D. The applicant submits— (I) Financial statements for the last complete fiscal year, accompanied by a report prepared by an independent certified public accountant, in conformity with generally accepted accounting principles, containing the accountant’s audit opinion or review opinion of the financial statements with no adverse opinion; and (II) Unaudited financial statements for completed quarters in the current fiscal year; and (III) Additional unaudited information as requested by the director. 3. Parent and non-parent corporation third-party guarantors. A. The director may accept a written guarantee for an applicant’s self-bond from a parent corporation guarantor, if the guarantor meets the conditions of paragraph (6)(D)2.A. through D. as if it were the applicant. Such a written guarantee shall be referred to as a “corporate guarantee.” The terms of the corporate guarantee shall provide for the following: (I) If the applicant fails to complete the reclamation plan, the guarantor shall do so or the guarantor shall be liable under the indemnity agreement to provide funds to the director sufficient to complete the reclamation plan, but not to exceed the bond amount. (II) The corporate guarantee shall remain in force unless the guarantor sends notice of cancellation by certified mail to the applicant and to the director at least ninety (90) days in advance of the cancellation date, and the director accepts the cancellation. (III) The cancellation may be accepted by the director if the applicant obtains suitable replacement bond before the cancellation date or if the lands for which the and Reclamation Operations self-bond, or portion thereof, was accepted have not been disturbed. B. The director may accept a written guarantee for an applicant’s self-bond from a non-parent corporation guarantor if the guarantor meets the conditions of subparagraphs (6)(D)2.A. through D. as if it were the applicant. The applicant must still meet the requirements of subparagraphs (6)(D)2.A., B. and D. of this rule. The written guarantee shall provide for the following: (I) If the applicant fails to complete the reclamation plan, the guarantor shall do so or the guarantor shall be liable under the indemnity agreement to provide to the director funds, up to the bond amount, sufficient to complete the reclamation plan; (II) The non-parent corporation guarantee shall remain in force unless the guarantor sends notice of cancellation by certified mail to the applicant and to the director at least ninety (90) days in advance of the cancellation date and the director accepts the cancellation; and (III) The cancellation may be accepted by the director only if the applicant obtains suitable replacement bond before the cancellation or if the covered lands have not been disturbed. 4. The total amount of the outstanding and proposed self-bonds for surface coal mining and reclamation operations shall not exceed twenty-five percent (25%) of the applicant’s or third-party guarantor’s tangible net worth in the United States, as determined by a certified public accountant. 5. For a self-bond, the guarantor shall execute an indemnity agreement according to the following: A. The indemnity agreement shall be executed and signed by all persons and parties who are to be bound by it, including the parent and non-parent corporations, and shall bind each jointly and severally. If the applicant is a partnership, joint venture or a syndicate, the agreement shall bind the partner or party who has a beneficial interest, directly or indirectly, in the applicant; B. Corporations applying for a selfbond, and parent and non-parent corporations guaranteeing a permittee’s self-bond, shall submit an indemnity agreement signed by two (2) corporate officers who are authorized to bind the corporations. A copy of the authorization shall be provided to the director along with an affidavit certifying that the agreement is valid under all applicable federal and state laws. In addition, the guarantor shall provide a copy of the corporate authorization demonstrating that the corporation may guarantee the self-bond and execute the indemnity agreement; and C. Pursuant to 10 CSR 40-7.031(3), the applicant, parent and non-parent corporation shall be required to complete the approved reclamation plan for the lands in default or to pay to the director an amount necessary to complete the approved reclamation plan, not to exceed the bond amount. If permitted under state law, the indemnity agreement when under forfeiture shall operate as a judgement against those parties liable under the indemnity agreement. 6. Self-bonded permittees and thirdparty guarantors shall submit an update of the information required under subparagraphs (6)(D)2.C. and D. within ninety (90) days after the close of their fiscal years. 7. If the financial conditions of the permittee or the third-party guarantor change so that the criteria of this section are not satisfied, the permittee shall notify the director immediately and post an alternate bond in the same amount as the self-bond. 8. Upon notification that the financial conditions of the permittee no longer satisfy this section, the permittee shall be deemed to be without bond coverage in violation of subsection (2)(A). The director shall issue a notice of violation against any operator who is without bond coverage. The notice shall specify a reasonable period to replace bond coverage, not to exceed ninety (90) days. During this period, the director or his/her authorized agent shall conduct weekly inspections to ensure continuing compliance with other permit requirements, the regulatory program and the law. The notice of violation, if abated within the period allowed, shall not be counted as a notice of violation for purposes of determining a pattern of willful violation under 10 CSR 40-7.031(1)(F)2. and need not be reported as a past violation in permit applications under 10 CSR 406.030(2) or 10 CSR 40-6.100(2). If a notice of violation is not abated in accordance with the schedule, a cessation order shall be issued requiring immediate compliance with 10 CSR 40-3.150(4). The operator shall also immediately begin the conduct reclamation operations in accordance with the reclamation plan. Mining operations shall not resume until the director has determined that an acceptable bond has been posted. 9. The bond shall be forfeitable upon revocation of the underlying permit. (7) Replacement of Bonds. (A) Permittees may replace existing surety or personal or self-bonds with other surety or personal or self-bonds, if the liability which has accrued against the permittee on the permit area is transferred to these replacement bonds. (B) Existing performance bonds will not be released until the permittee has submitted and the director has approved acceptable replacement performance bonds. A replacement of performance bonds pursuant to this section shall not constitute a release of liability under AUTHORITY: section 444.810, RSMo 2000.* Original rule filed Dec. 9, 1982, effective April 11, 1983. Emergency amendment filed June 27, 1986, effective July 7, 1986, expired Nov. 4, 1986. Amended: Filed June 27, 1986, effective Oct. 27, 1986. Amended: Filed Dec. 15, 1987, effective April 1, 1988. Rescinded and readopted: Filed Sept. 15, 1988, effective Jan. 15, 1989. Amended: Filed July 3, 1990, effective Nov. 30, 1990. Amended: Filed May 15, 1992, effective Jan. 15, 1993. Amended: Filed Sept. 15, 1994, effective April 30, 1995. Amended: Filed March 21, 2000, effective Oct. 30, 2000. Emergency amendment filed Dec. 21, 2005, effective Jan. 1, 2006, expired June 29, 2006. Amended: Filed Dec. 1, 2005, effective July 30, 2006. *Original authority: 444.810, RSMo 1979, amended 1983, 1993, 1995.