The central Appalachian coal region plays a large part in supplying the country with its energy needs. Specifically, in 2008, West Virginia and Kentucky were the second- and third-largest coal-producing states in the nation—behind Wyoming—and accounted for more than 76 percent of the coal produced from surface mines in Appalachia. West Virginia produced about 69 million tons of coal from surface mines, while Kentucky produced about 51 million tons. Virginia produced close to 9 million tons and Tennessee less than 2 million tons from surface mines in 2008, respectively. SMCRA requires mine operators to obtain a permit before starting to mine. The permit process requires operators to submit detailed plans describing the extent of proposed mining operations, how reclamation on the mine site will be achieved, and the estimated per-acre cost of reclamation. In reclaiming the mine site, operators must comply with regulatory standards that govern, among other things, how the reclaimed area is regraded, replanting of the site, and the quality of water flowing from the site. (See app. II for selected details about these key reclamation standards.) In general, an operator must reclaim the land to a use it was capable of supporting before mining or an alternative post-mining land use that the regulatory authority deems higher or better than the pre-mining land use. Additionally, although the operator is generally required to redeposit spoil on the mine site so that it approximates the original contour of the site, the operator may in certain circumstances receive a variance to this general requirement and leave the land flat or gently rolling. In addition, a mountaintop removal operation is one that, by definition, will not restore the area to its approximate original contour. However, only specific types of post-mining land uses—including industrial, commercial, agricultural, residential, or public uses—are allowed for mountaintop removal operations. SMCRA requires the operator to submit a bond in an amount sufficient to ensure that adequate funds will be available for the regulatory authority— either OSM or a state with primacy—to complete the reclamation if the operator does not do so. The bond provisions of SMCRA apply generally to all types of coal mines and do not include any requirements that are specific to mines with valley fills. However, the bond amount for a particular site cannot be less than $10,000 and must also be sufficient to ensure the completion of the reclamation plan for that particular site if the work had to be completed by the regulatory authority in the event of forfeiture. In this report, we refer to a bond that is equal to the expected cost to reclaim the entire site as a “full-cost bond.” OSM has prepared guidance for mine operators on how to calculate their bond amounts to capture the likely costs of reclamation. Bond amounts can be adjusted as the size of the permit area or the projected cost of reclamation changes. When all reclamation standards identified in SMCRA and the operator’s permit—including compliance with water quality standards—have been met, the bond is completely “released” to the operator. The OSM regulations implementing SMCRA recognize three major types of bonds: corporate surety bonds, collateral bonds, and self-bonds. A surety bond is a bond in which a surety company guarantees the performance of the permittee’s obligation to reclaim the mine site. If the mining company does not reclaim the site, the surety company must pay the bond amount to the regulatory authority or the regulatory authority may allow the surety company to perform the reclamation instead of paying the bond amount. Collateral bonds include cash; certificates of deposit; liens on real estate; letters of credit; federal, state, or municipal bonds; and investment-grade securities deposited directly with the regulatory authority. A self-bond is a bond in which the permittee guarantees its own performance with or without separate surety. Self-bonds are available only to operators who meet certain financial conditions. To remain qualified for self-bonding, operators must, among other requirements, maintain a net worth of at least $10 million, possess fixed assets in the United States of at least $20 million, and have an “A” or higher bond rating. SMCRA also authorizes states to enact an OSM-approved alternative to a full-cost bonding system as long the alternative achieves the same objectives. One kind of alternative bonding system is known as a “bond pool.” Under this type of system, the operator may post a bond—e.g., a surety bond or collateral bond—for an amount determined by multiplying the number of acres in the permit area by a per-acre assessment. The per- acre assessment may vary depending on the site-specific characteristics of the planned mining operation and the operator’s history of compliance with state regulations. However, the per-acre bond amount may be less than the estimated cost of reclamation. To supplement the per-acre bond, the operator generally must pay a fee for each ton of mined coal and may also be required to pay other types of fees. Funds are placed within a pool and can be used to reclaim sites that participants in the alternative bonding system do not reclaim. Under OSM regulations, all alternative bonding systems must provide a substantial economic incentive for the operator to comply with reclamation requirements and must ensure that the regulatory authority has adequate resources to complete the reclamation plan for any sites that may be in default at any time. Once bonds have been completely released to a mine operator, the relevant regulatory authority may terminate its jurisdiction under SMCRA. However, the regulatory authority may also revoke an operator’s permit if the operator fails to comply with the permit’s provisions. Under those circumstances, the operator may forfeit the bond to the regulatory authority. The regulatory authority then becomes responsible for reclaiming the land to the reclamation standards found in the operator’s permit. If the amount forfeited is insufficient to pay for the full cost of reclamation, the operator remains liable for remaining costs. The regulatory authority may complete reclamation and may sue the operator to recover additional expenses. Failure to complete reclamation has other serious consequences for mine operators—SMCRA prohibits applicants from obtaining future SMCRA permits if they have unabated violations of law or regulations applicable to surface mining; state regulations specifically note that bond forfeitures based on violations that are not subsequently corrected disqualify operators from obtaining future permits. The objective of the Clean Water Act is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters. Section 404 of the act allows the Corps to issue permits for the discharge of material, including fill material, into waters of the United States at specified disposal sites. Such permits are needed for the construction of a valley fill. Section 404(c) authorizes EPA to deny or restrict the use of any disposal site where it finds that the discharge will have unacceptable adverse effects. Mining companies may be able to construct valley fills under one of two types of permits issued by the Corps. First, the mining company may be authorized to construct a valley fill under the Corps’ “nationwide permit” for surface coal mining. A nationwide permit provides coverage for substantially similar activities that are expected to cause only minimal adverse environmental effects on an individual and cumulative basis. Second, the Corps may issue an “individual permit.” Individual permits are issued on a case-by-case basis for activities that are expected to have more than a minimal impact. Before issuing an individual permit, the Corps must evaluate the operator’s proposed activity for several factors, including, but not limited to, its effects on environmental values—such as fish, wildlife, and water quality—and safety issues, as well as any proposed mitigation for the project. Under guidelines prepared by the EPA Administrator and the Secretary of the Army acting through the Chief of Engineers, pursuant to section 404, the Corps may issue permits to discharge fill material, if, at a minimum, compliance with the guidelines is demonstrated. One aspect of compliance is that the discharge does not cause or contribute to “significant degradation” of waters of the United States. Under these guidelines, an operator would not be permitted to discharge fill materials into waters of the United States if there is a practicable alternative to such a discharge and would be required to minimize discharges that cannot be avoided. If such discharges are unavoidable, the Corps can require as a condition of the permit that the operator compensate for the loss or degradation of regulated waters. In the case of valley fills that bury streams, such compensatory mitigation could involve (1) creating a new stream, (2) enhancing a degraded stream, or (3) preserving an existing stream. The mitigation work may be done within the permitted area (on-site) or outside of the permitted area (off-site). Mitigation may be performed by the mine operator or a third party, such as a public or nonprofit entity, under agreement with the Corps. The Corps’ Clean Water Act implementing regulations and related policies authorize the Corps’ district engineers to require financial assurances when approving section 404 permits in order to ensure a high level of confidence that compensatory mitigation will be successfully completed. The Corps allows financial assurances to be in the form of bonds, escrow accounts, casualty insurance, letters of credit, legislative appropriations for government sponsored projects, or other appropriate instruments, subject to the approval of the district engineer. If assurances are required, district engineers are to determine the amount based on factors such as the size and complexity of the compensatory mitigation project, the likelihood of success, the past performance of the project sponsor, and any other factors they deem appropriate. Also, Corps district engineers must release financial assurances once they determine that the operator has demonstrated that a compensatory mitigation project has successfully met its performance standards. Typically, the monitoring period to assess the success of a compensatory mitigation project is 5 years but this period may be extended for projects that take longer, such as stream restoration.