Legislature(2003 - 2004)
03/01/2004 01:07 PM House RES
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 486-MINING RECLAMATION ASSURANCES/FUND CO-CHAIR DAHLSTROM announced that the final order of business would be HOUSE BILL NO. 486, "An Act relating to reclamation bonding and financial assurance for certain mines; relating to financial assurance limits for lode mines; establishing the mine reclamation trust fund; and providing for an effective date." The committee took an at-ease from 2:22 p.m. to 2:25 p.m. Number 1597 BOB LOEFFLER, Director, Division of Mining, Land and Water, Department of Natural Resources (DNR), testified. Mr. Loeffler explained that reclamation is the process in which mined land is put back [in its original state] after being disturbed for the [extraction] of minerals. Initially, he said the mining company puts up a bond for the disturbance, and should the mining company fail to reclaim the land or to put it back to a productive state, the state can seize the bond and get the work done to protect the citizens. When current statutory framework was established in 1991, Alaska had mostly a placer-mining industry, which is very different from the placer and hard rock industry the state has today. He said when this was established in 1991, the Red Dog Mine was just starting and Fort Knox Mine, True North, Pogo Project, and Greens Creek Mine [were not operating]. The state's statutory framework was really appropriate for placer mining, he said. Number 1436 MR. LOEFFLER said there is a $750 per acre cap on bonds charged to companies for reclaiming the land. He suggested that may or may not be close to appropriate for placer mines, but most large hard rock mines, for example, the Pogo Project or Red Dog Mine, can't reclaim the land for anywhere near that. The bonds are expected to be $24-26 million for the Greens Creek Mine, $26 million for the Pogo Project, and $50-100 million for the Red Dog Mine, he explained. He said for $750 per acre he couldn't charge a bond that is appropriate for the large mining industry; an industry that he hopes is growing. Mr. Loeffler said HB 486 removes the $750 per acre cap on lode mines, which are large mines. For placer mines exploration, he said DNR will maintain the current system, and for the large mines with big reclamation expenses, DNR will charge the full and reasonable cost for a bond. Secondly, he said the bill broadens the instruments companies can use to satisfy the state's requirements. He said it includes such things as letters of credit, surety bond insurance, certificates of deposit, and corporate guarantees - things of that nature. MR. LOEFFLER said he would imagine that each individual company will end up using a different suite of those things depending on the size of the bond and the situation, and the suite may change over the life of the mine. Mr. Loeffler said [DNR] would have the ability to charge more, but would also have a greater repertoire companies can use to satisfy the requirements. He said the mine reclamation trust fund is a voluntary fund that companies can use to satisfy the reclamation obligation. He said [DNR] frequently has long-term reclamation obligations, for example, Red Dog Mine may require water quality treatment forever. He explained that [the state] has asked Fort Knox Mine to leave the freshwater lake as a recreation site for Alaskans. He said the Fort Knox Mine will leave a bond, but to maintain the dam in perpetuity, unless the state can use the interest on that in perpetuity, it doesn't really have a reclamation fund. He said unless [the state] can keep the interest on the bond that the Red Dog Mine provides, [the state] doesn't have a perpetual reclamation mechanism. MR. LOEFFLER said in place is a 30-year monitoring requirement for Illinois Creek Mine, and if a mining company has to come up with a bond for 30 years, it is easier if [the state] can keep the interest. The reclamation trust fund is a way for the state to deal with long-term reclamation bonding obligations or perpetual, he said. He said it has a couple of advantages for [the state], one of which is it allows the state to accommodate the large industry, which often has long-term requirements. He said while a company can use a variety of suites, "this is a mechanism that the state could hold the cash." He said that's best from the state's perspective. He said if a company is putting money aside for long-term reclamation, it is expecting to use the interest, which is taxable. The state is not a taxable entity, and if the state holds the money for the company, that interest accumulates tax-free, he explained. He said there is an advantage for the companies should they choose to use this voluntary mechanism of letting the state hold the money, and noted that there are some other tax advantages. Number 1147 REPRESENTATIVE STEPOVICH asked if the $750 per acre cap only applied to lode mines. MR. LOEFFLER said currently, the cap applies to all reclamation and would only be eliminated for lode mines. REPRESENTATIVE STEPOVICH asked why it would only be eliminated for lode mines. MR. LOEFFLER said it is believed that the placer industry and exploration are operating just fine. REPRESENTATIVE STEPOVICH asked, "Once they see the lode mines getting this break do you think they will be just fine?" MR. LOEFFLER said the cap is not [the state's] ability to charge mining companies for reclamation, rather it is [the state's] ability to require mining companies to put up a bond. He said he didn't foresee the placer industry [volunteering] to "put up more money." REPRESENTATIVE STEPOVICH remarked, "They exclude the operation that generates acid; is that obvious." MR. LOEFFLER replied yes. He said the placer mining community really doesn't put up a bond; they go into a placer mining pool in which all of their assets are co-mingled. Mr. Loeffler said mining operations that are too big for the placer bond pool would be excluded, including mining operations that generate acid. He said while large hard-rock mines have the potential to create acid, placer mines do not. REPRESENTATIVE STEPOVICH turned attention to page 4, line 20, and he said of the two statutes on this line, one pertains to minerals, and the other pertains to coal. He asked how the fund would work. MR. LOEFFLER said it's in the reclamation trust fund and it says the trust fund can be used whether the reclamation obligation is under AS 27.19, which is used for metal mines, or whether it's under coal. He said this trust fund is available for either opportunity. REPRESENTATIVE STEPOVICH directed attention to page 5, paragraphs (1)-(7), and he asked how those activities are currently paid for. MR. LOEFFLER said the company has the obligation to do the reclamation and the [bill] doesn't change that; it says if [the company gives the state] the money to hold, it can reimburse the company if it does any of the [activities in paragraphs (1)- (7)]. He said the company would still have the responsibility to reclaim the mine. REPRESENTATIVE STEPOVICH asked if this [bill] is an incentive or a savings. MR. LOEFFLER said he believes it will be both an incentive and a savings for companies that need to accumulate cash in order to do the reclamation later. It is an incentive for companies to give the state cash and it will be a savings to those companies because some of that cash can be held tax-free, he said. Number 0909 REPRESENTATIVE HEINZE said she thinks this is a good bill, but the corporate guarantee is a concern. She asked Mr. Loeffler to explain the Alaska Bond Pool program. MR. LOEFFLER, noting that the Alaska Bond Pool program is for placer mines, said if small "mom and pop" [mining operations] couldn't come up with a full bond, it would join a bond pool. For each acre that is disturbed by mining, the placer mine gives the state $150, of which [75 percent] or $112.50 per acre is refunded upon [approval of the reclamation]. He explained that the state has the ability to pull the full amount of money for each operation's reclamation from the bond pool if necessary. Mr. Loeffler said it's like an insurance pool [for participating operations] that can be used to pay for any default. REPRESENTATIVE HEINZE asked Mr. Loeffler to elaborate on the corporate guarantee. MR. LOEFFLER said the purpose of a corporate guarantee is to guarantee that the mining company has the money to perform the work, although if the company goes bankrupt, the corporate guarantee is of no value. He said the coal program has corporate guarantees in that the state puts a series of financial tests together to ensure that the company is not in any danger of going bankrupt. He said the company has to have "four times the assets to liabilities ratio" and a number of financial tests. Mr. Loeffler said [the state] hires a consulting firm to go through Usibelli Coal Mine, Inc.'s [financial records] each year to assure the state that it is a "good risk" and that it meets the state's regulations. He said he expects that the state will be writing regulations to ensure that it doesn't accept corporate guarantees from companies that are bad risks. Number 0720 MR. LOEFFLER said he also expects that the state would be more likely to accept corporate guarantees from a mine that has to come up with a lot of money over 20 to 30 years to reclaim it. He said in the first part of the mine life there is a little less risk because there's less disturbance, and the state might have some amount of actual cash and some amount of corporate guarantees. He said as "it gets to the end" where the [state] would need cash, it would probably want to change the mix, so "we have less guarantee, less risk" that if the company went bankrupt, "citizens would be holding the bag." He said he expects that corporate guarantees would be used as one instrument in some locations, and would only be used where [the state] has done financial testing to ensure that the company's a good risk. [Corporate guarantees] would not necessarily be used in all parts of the mine life, he added. He said typically a corporate guarantee is done with a parent corporation, for example, the Red Dog Mine is run by Teck Cominco Limited. He said there is a parent corporation with mines all over the world, and a corporate guarantee is a way to bring some of those assets to bear to guarantee the Alaskan operation. MR. LOEFFLER, in response to a question from Representative Heinze, said if a company wished to use a corporate guarantee, [the state] would probably go towards that. Number 0515 REPRESENTATIVE KERTTULA asked whether the [state] has drawn from the bonding pool in the past, and how much was drawn out of it. MR. LOEFFLER said this year [the state] seized about $4,000 from the bonding pool for placer mines. He said [the state] managed to reclaim two or three sites in the Petersville area and one in the "forty mile" [area], and received a lot of help from mining communities that donated a lot of time. Mr. Loeffler said a bond for $1.5 million was seized in 1999 from Illinois Creek Mine, which was a large mine that was not in the bonding pool. REPRESENTATIVE KERTTULA asked if Illinois Creek Mine was a company that went bankrupt. MR. LOEFFLER said yes, and Illinois Creek Mine was not in the bond pool. REPRESENTATIVE KERTTULA asked what type of bond Illinois Creek Mine had given the state. MR. LOEFFLER said the company had cash in the bank. He said the state wrote a letter [to the bank] and much to his surprise a check appeared 3 days later. He said he was told that is not the usual situation. REPRESENTATIVE KERTTULA asked if the corporate guarantee will be done "up front" when the agreement is made or if "they roll over." She remarked, "I'm just wondering how you get from having guarantee to having cash." MR. LOEFFLER said he expects that the state will [put into place] regulations that will require a relatively detailed financial test, and the company must meet that financial test yearly. He said he also expects [the state] will have a reclamation agreement up front that would set out the reclamation expectations for the life of the mine, but knowing that mines and conditions change and that that agreement would be revisited on a regular and periodic basis. REPRESENTATIVE KERTTULA if other states do something similar to this. MR. LOEFFLER said he believes that the reclamation trust fund itself is somewhat innovative, and he doesn't know that other states do anything exactly like it. He said the concept of reclamation agreements, full and reasonable costs, and corporate guarantees are all done nationally. He said internationally there are some states that have outlawed corporate guarantees. He said some states use corporate guarantees and the federal government uses them in some situations. REPRESENTATIVE KERTTULA asked what the policy reason is for not having corporate guarantees. MR. LOEFFLER said the reason is that if the corporation goes bankrupt, the guarantee is meaningless. He said corporate guarantees should only be used in those situations where the risk is low or where there is a plan to use it as part of an instrument to put aside money. Mr. Loeffler said given a full reclamation and a very large [amount of money] needed for a multi-million dollar bond, he expects there situations will arise in which a corporate guarantee is an absolute necessity for at least some period of time. He said he expects the state will have regulations to ensure that it is not used inappropriately. Number 0195 REPRESENTATIVE STEPOVICH asked who is opposed to the bill the bill. MR. LOEFFLER said he believed he should let those people speak for themselves. REPRESENTATIVE STEPOVICH asked if he knows who those people are. MR. LOEFFLER said he believes this makes the world better for reclamation. Mr. Loeffler, noting his belief that Alaskans for Responsible Mining was present, said whether [Alaskans for Responsible Mining] opposes the bill or not is up to them, but he couldn't speak for them. REPRESENTATIVE STEPOVICH asked if anyone had been in contact with him. MR. LOEFFLER said he had talked extensively with [Alaskans for Responsible Mining] and there are parts of [the bill] they like and parts they are not sure about, but he was uncomfortable voicing their opinion. REPRESENTATIVE STEPOVICH clarified that he is not asking for an opinion, rather he is asking who contacted Mr. Loeffler in opposition to this bill. MR. LOEFFLER said he didn't know that anybody was against the bill as a whole, and any concerns about corporate guarantees would only be from the environmental community. REPRESENTATIVE STEPOVICH said he is trying to get a more rounded look at some of these issues. He remarked, "I've been hearing that people who are writing the bills are bringing them in; they're the ones that are the only ones we get." He said he figured the proponents would know who the opponents are. MR. LOEFFLER said he is often able to unify. Number 0037 REPRESENTATIVE GATTO said the traditional opponents are the Sierra Club and the Friends Of The Earth. MR. LOEFFLER said he believes this bill strengthens [the state's] position with reclamation. He said currently companies give the state a voluntary reclamation bond and this bill would make it a requirement. TAPE 04-10, SIDE A REPRESENTATIVE GATTO asked why miners are against it. He said the bill is forcing miners to go from voluntary to compulsory. MR. LOEFFLER deferred the question to [the mining industry]. Number 0046 CO-CHAIR MASEK directed attention to a handout in the bill packet entitled "Alaskans for Responsible Mining," which read in part [original punctuation provided], "Another mine that was part of the Alaska Bond Pool Program is also bankrupt, with clean-up costs likely to exceed $250,000 (Nixon Fork)." She asked Mr. Loeffler if he cared to comment. MR. LOEFFLER, noting that the mind was on federal land, said he expects the mine to reopen again with a new operator, and did not expect there would be any clean-up costs. He said nothing has been taken from the bond pool for that mine, and he didn't expect [any bond money] would have to be taken. He said it will fully reclaim itself. Number 0137 ROGER FEATHERSTONE, Campaign Director, Alaskans for Responsible Mining, testified. He said Alaskans for Responsible Mining had not taken a position on the bill, although there things about the bill that the coalition likes and things it has concerns about. He said in general, he thought the coalition is supportive of removing the cap, which was put in to place at a time when mining was substantially different in Alaska. He said with large mines coming on line, it's clearly not adequate for the business of mining responsibly. Mr. Featherstone said the trust fund is intriguing and he was not sure if the coalition has come up with a position yet on that portion of the bill. He said his "gut feeling" is that if [the bill] brings in money and fully reclaims the mines; protects the air and water, salmon, and everything else; and most importantly, if the state isn't left "holding the bag," then it's probably a good thing. MR. FEATHERSTONE expressed concerns about corporate guarantees, and he referred to the aforementioned handout, which outlines those concerns. He said with companies going in and out of business, the potential of bankruptcy does make [the corporate guarantees] not worth a whole lot of money. Mr. Featherstone said he is hopeful that if corporate guarantees do happen, the parent companies [will be held responsible]. He said in [bankruptcy situations] often "you're chasing after the person that owns the license," but the parent company has tons of money and doesn't put anything into reclamation or clean up, and he hopes that can be avoided. MR. FEATHERSTONE said Alaskans for Responsible Mining feels there are other forms of financial assurances that aren't so risky, and would like to ensure that those are utilized instead of going with something that might be a problem in the future. He said Alaskans for Responsible Mining is interested in looking at the possibilities on these courses of action. He noted that large mines are a fact in Alaska and are not going to go away, and remarked, "We ... need to make sure that when they do happen, ... they're done right and there is enough money left to make sure that they're reclaimed at the end safely ...." REPRESENTATIVE KERTTULA asked what kinds of assurances the state should consider that would be less risky. MR. FEATHERSTONE said the Alaskans for Responsible Mining is a coalition, so coming to a consensus on everything is sometimes difficult. He remarked: The two things that we have the problems with, if any, are corporate guarantees, and ... although it's been explained somewhat by Mr. Loeffler, sinking funds or any other form of financial insurance seems a little vague to us. ... We would hope ... if this bill should pass, that when it comes time to do the regulations that those things at least can be defined a little more, so it's not quite so much an open door policy. REPRESENTATIVE HEINZE said Jerry Gallagher was the director of the Division of Mining when the $750 cap was put into place in the 1990s. She asked, "From that point ... until now, when we're looking at this bill before us, do you think we're almost there?" Representative Heinze asked Mr. Featherstone how happy he is with this bill on a scale of 1 to 10. MR. FEATHERSTONE said it depends on what parts of the bill are being looked at; "we're right up there" with regard to removing the cap; "we're probably pretty close to that as well" regarding the trust; and "we're probably on the lower end of the scale" regarding corporate guarantees. REPRESENTATIVE HEINZE asked if was fair to say that [this bill] is a "leap forward." MR. FEATHERSTONE said it is not a leap forward. He said he thought the intent of this bill is good, but "the devil's in the details." He remarked: A lot of it will depend on what the regulations say. A lot of it will depend on the nuts and bolts of enforcement. A lot of it will depend on people being responsible citizens - ... from the mining companies making really good faithed effort to ... meet the intent that, ... perhaps, ... DNR's looking at, and not just the minimum that you'd buy. ... All of those things will make a huge difference whether this is a great leap forward or whether it's ... a good start. REPRESENTATIVE KERTTULA asked if federal regulations are applicable to mines in addition to state regulations, and she indicated that Mr. Loeffler had responded no. She asked if the reclamation is [entirely] the state's responsibility. MR. FEATHERSTONE said he is the "policy person" and is dependant on coalition members for technical expertise. Number 0784 STEVE BORELL, Executive Director, Alaska Miners Association (AMA), testified. He stated that AMA is in support of HB 486. He said this bill will make several important changes to requirements for mining and financial assurance for mining operations. He said some of the changes clarify and define the procedures and the requirement that DNR had been following for several years regarding large mines. Other changes will providing for a sinking fund or trust account approach to collect funds over the life of a project to ensure that the monies are in place with the state when long-term water treatment or environmental monitoring or other related work is needed after the mine has been reclaimed and closed. He said the current statute requiring financial assurance for mining was sponsored by the late Senator Betty Fahrenkamp in 1990, and the statute and the approach it established has served Alaska and the mining industry well for almost 14 years. However, he said the statute has had some questions raised about it. MR. BORELL said it was focused primarily on small family placer mines. Since that time it has become clear that some changes to statute are needed to effectively address the financial assurances needed for large load mines, he explained. He said the mining industry has been discussing this need for several years, and over the past six months the industry has worked with DNR and the Department of Environmental Conservation (DEC), and participated in coming up with this approach. Mr. Borell said [the bill] has been through many iterations to ensure that it works for the state and the industry, and "we believe we have found that in this." He remarked: I appreciate the questions about corporate guarantees, and not just corporate guarantees, but the entire reclamation topic. It's far more important to the mining industry than it is to any individual stream, ... any individual environmental group or anybody else, because if somebody goes out and makes a mess and it isn't corrected and there isn't an ability to do that properly, it's the mining industry that gets the bloody nose; it's not the environmental organization that gets a bloody nose. It's me and my membership that get the problem and so it's extremely important that a corporate guarantee not allow somebody to just walk away and not be able to cover it or any of the other mechanisms. We look at these not just from the standpoint of how can ... some mining operator get out of something, not at all. ... It's far more important to the industry that this be done right than it is to any other group at all. MR. BORELL urged the committee to move the bill at the earliest possible date. Number 1061 CO-CHAIR DAHLSTROM, upon determining no one else wished to testify, closed public testimony. REPRESENTATIVE GUTTENBERG turned attention to page 6, line 5, and he asked if that [language] was normal. He said it seems like this is going to be a "regulation heavy" statute change. MR. LOEFFLER said that sentence only pertains to the reclamation trust fund. He said he believes the critical regulations about corporate guarantee are regulations under AS 27.19, and are in the existing regulatory authorities. He said he could guarantee that [DNR] would be adopting regulations. REPRESENTATIVE KERTTULA asked how quickly that would be done. MR. LOEFFLER said he thought that would be started as soon as the bill passes. REPRESENTATIVE KERTTULA asked if [DNR] had any [personnel] left to do it. Number 1180 CO-CHAIR MASEK moved to report HB 486 out of committee with individual recommendations and the accompanying fiscal notes, and asked for unanimous consent. There being no objection, HB 486 was reported from the House Resources Standing Committee.
| Document Name | Date/Time | Subjects |
|---|