The Availability of Reclamation Bonds for Surface Coal Mining

GAO discussed the availability and use of reclamation bonds for surface coal mine operators in Kentucky, Ohio, Pennsylvania, and West Virginia. GAO noted that: (1) the number of surety companies providing reclamation bonds decreased from 46 in 1982 to 26 in 1986; (2) operators use surety bonds as the primary financial guarantee, although use of bonds has declined since 1977; (3) state regulatory authorities and mining association representatives expressed concern about operators' ability to obtain surety bonds; (4) operators had to replace about 1,300 bonds worth about $50 million when 6 surety companies became insolvent between 1985 and 1987, and replaced about one-third of those bonds with other bonds; (5) smaller operators had more difficulty in obtaining surety bonds and paid higher collateral rates than larger operators; (6) surety company representatives suggested use of incremental and phased bonding, unilateral bond cancellation, better-defined reclamation requirements, safeguards against unforseen bond increases, and an expedited bond release process to mitigate underwriting problems caused by legislative requirements and the depressed coal market; and (7) the reclamation bond industry has remained relatively profitable since 1980. GAO believes that the relevant federal and state government, surety, mining, and environmental entities will need to work cooperatively to develop more bond sources for responsible operators and ensure timely and successful reclamation.