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Oversight Report
Office of Surface Mining Reclamation and Enforcement
Western Region

State Calculation of Required Bond Amounts National Priority Oversight Evaluation
Western Region States

July 8, 2010

Bond Adequacy Oversight Evaluation

Table of Contents
Introduction – Bonding Adequacy Oversight Evaluation…………………………………………………3 Summary – Bonding Adequacy Oversight Evaluation…..…………………………………………………3 Evaluation Methodology Used by the Western Region Bonding Oversight Team …………..4 Bond Amount Calculation Adequacy Oversight Evaluation ……………………………………………5 Summary of State Findings ……………………………………………………………………….…………………..8
Alaska ……………………………………………………………………………………………………………………………………….8 Colorado …………………………………………………………………………………………………………………………………..9 Montana …………………………………………………………………………………………………………………………………..9 New Mexico…………………………………………………………………………………………………………………………….10 North Dakota ………………………………………………………………………………………………………………………….11 Utah ……………………………………………………………………………………………………………………………………….12 Wyoming ………………………………………………………………………………………………………………………………..13

Appendix 1: Bonding Oversight Baseline Questions …………………………………………………….14 Appendix 2: State Specific Bond Evaluation Reports ……………………………………………………16
Alaska ………………………………………………………………………………………………………………………….16 Colorado ……………………………………………………………………………………………………………………..20 Montana ……………………………………………………………………………………………………………………..24 New Mexico ………………………………………………………………………………………………………………..28 North Dakota ………………………………………………………………………………………………………………31 Utah …………………………………………………………………………………………………………………………….37 Wyoming ………………………………………………………………..……………………….………………………….42

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Introduction – Bond Adequacy Oversight Evaluation
The Office of Surface Mining Reclamation and Enforcement (OSM) selected state implementation of bond adequacy as a national priority oversight evaluation topic. The was to review the effectiveness of state regulatory authorities in implementing and enforcing their state rules, regulations, and policy and guidance documents related to bonding and to determine the adequacy of the states’ bond amount calculations, which set the amount of the bond held by the state. OSM’s National Priority Work Plan for conducting the evaluation recommended that OSM Western Region (WR) staff evaluate 20 percent of all coal mines, up to a maximum of five (5) mines per state regulatory program and include reviewing bond adequacy for new and renewed permits, revisions to permits, phased bond releases and bond forfeitures. The WR conducted evaluations of state regulatory programs in Alaska (1 permit reviewed) , Colorado ( 5 permits reviewed), Montana (3 permits reviewed), New Mexico (1 permit reviewed) , North Dakota (4 permits reviewed) , Utah (3 permits reviewed) and Wyoming (5 permits reviewed). The evaluation included permits which utilize full-cost conventional bonds for one or more phases of reclamation. In states that have alternate bonding systems, the evaluation was to focus on field reviews of proper reclamation of bond forfeiture sites to assure the sites were reclaimed in accordance with the approved plans. The bond adequacy work plan entailed three aspects for evaluating bond adequacy. The first aspect was to determine how each state calculated bond amounts for non-forfeited bonds associated with specific permits. The second aspect was to review permit revisions to determine whether the states are properly evaluating bond adequacy as part of the permit revision application process required by 30 CFR 800.15(d). The third aspect was to evaluate recently-forfeited sites if the state has experienced any bond forfeitures since OSM last conducted an in-depth study of bond forfeitures or the adequacy of bond calculations in each state.

Summary – Bond Adequacy Oversight Evaluation
Twenty-two (22) separate permit bond-adequacy evaluations were completed (19.13%) of the 115 active permits in WR primacy states (count per 2009 Reg-8 Evaluation Report summary). OSM Directive TSR-1, “Handbook for Calculation of Reclamation Bond Amounts” (OSM Bonding Handbook) was the standard by which state bond calculations were determined adequate for identifying the costs to be considered and included in each calculation. The WR review focused on a pre-determined, randomly selected (by FOD or State) new permits, renewed permits, permit revisions or phased bond releases. As used in the OSM Work Plan, the term “bond adequacy” means, the amount of bond posted for a permitted operation is at least equal to the calculated bond amount by the state for it to complete reclamation should forfeiture occur. Within WR, all states use some form of the OSM Bonding Handbook calculation method to determine full-cost conventional bond amounts.

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There are no alternate bonding systems in any of the WR states. There have been no recent bond forfeitures, with the last bond forfeiture having occurred in 2000. Since the last bonding oversight reviews in about 1995, none of the states has undergone procedural changes in the way they calculate bond amounts. There are no bond forfeitures to evaluate in the Western Region. This oversight evaluation did not include a review of actual bonding instruments to determine if the amount of bond held by a state was equal to or greater than the amount determined by their bond cost calculation. When reviewing the identified permits, it was noted that four WR states issue a single permit to cover an entire mine. North Dakota, Montana and Alaska issue multiple permits that cover specific areas within a single mine.

Evaluation Methodology Used by the Western Region Bonding Oversight Team
WR reviewers began each state bonding program evaluation by reviewing (1) the state guidance policies, (2) operation plan for each mine to determine the mining method and planned progression of mining over both the permit term and the life of mine, the types of equipment being used, and the extent of facilities and other mining-related disturbance, (3) the reclamation plan to determine the reclamation process and identify structures approved to remain in place or to be removed after mining, and finally, (4) if available, the permittee’s reclamation cost estimate and the state’s bond amount calculation to determine the bond amount posted. WR staff reviewed the types and volumes of material to be moved , the type and amount of demolition, the types of equipment proposed for use, the costs (labor, equipment, demolition, etc.), and generally looked to see that the costs were reflective of the requirements detailed in the approved reclamation plan. OSM determined the state bond cost calculations were reasonable for each permit reviewed, with wage rates comparable to the Davis Bacon wage rates or the state’s rates. Each bond calculation was evaluated either by an independent calculation by WR staff or by the spot checking of costs including hourly costs, wage rates, and demolition costs, as well as the volumes, items or counts associated with each unit cost. The reclamation plan dictated which costs were included in the overall bond calculation, including but not limited to, backfilling, grading, topsoiling, type and amount of vegetation, failure rate of vegetation, retention fees associated with a phased bond release, removals or downsizing of structures, long- or short-term monitoring, and other requirements to restore the land consistent with the approved reclamation plan. For the purpose of this evaluation, OSM assumed, but did not verify, that the volumes of material to be moved in each state’s bond amount calculation were correct. This was also true for the acres to be covered with topsoil or substitute material, and those which will have various types of vegetation. The reviewers were provided a Bonding Work Plan with pre-written questions (Appendix 1). The questions guided reviewers through a standardized evaluation process to determine the adequacy of bond calculations for each permit reviewed. The questions directed the reviewers to determine how a state calculates bond amounts and compare that to how OSM would calculate the bond amount using 4

their regulations and guidance documents, and finally, how the public is involved with the reclamation cost estimating process. Detailed state-specific bonding oversight evaluation reports, along with the questions suggested by the Bonding Oversight Work Plan are provided in Appendix 2 below.

Bond Amount Calculation Adequacy Oversight Evaluation
During each state’s bond adequacy oversight office visit, the WR Bonding Team engineers met with the state permit coordinators, supervisory staff, and engineers to discuss programmatic policies relating to the state’s interpretation and implementation of their bond calculation procedures, as well as the specifics of each permittee’s reclamation cost estimate. OSM reviewed the procedures employed by each state to approve and verify bond amounts, and determine if there has been any public commentary or complaints relating to the adequacy of bond amounts. The WR engineers reviewed language within each permit as it relates to the state program regulations, rules and guidance for calculating bond amounts. This review focused on several aspects of each permit, including information found in the operations plan, the reclamation plan and in the reclamation cost estimates to determine what had been considered for and included in each state’s bond amount calculation, and whether the amount of the bond reflected what was approved in the reclamation plan of each permit. The sources of cost factors used in the reclamation cost estimates and bond calculations were evaluated for reasonableness, as were the raw hourly costs for equipment and labor, demolition and materials. A discussion of the procedural guidance documents and the costs used by each state in their bond calculations reference materials is detailed in each state summary review in Appendix 2. The types and amounts of “Indirect”, administrative or other add-on costs calculated in by state were, for the most part, similar to the types and purposes of costs suggested in the OSM Bonding Handbook. The amount of any notable difference between OSM’s costs and each state’s costs are included in Appendix 2 state summaries. North Dakota (Policy Memorandum No. 16) and Wyoming (Guideline No. 12) have policy guidance documents which annually set the hourly costs, production rates, and the types of equipment to be used in each reclamation cost estimate submitted to the state for consideration and approval. Utah’s “Technical Directive - Calculation Guidelines for Determining Reclamation Bond Amounts”, and New Mexico’s “Guidelines for Bond Calculations”, nearly replicate the concepts and procedures outlined in OSM’s “Handbook for Calculation of Reclamation Bond Amounts.” Alaska and Montana simply defer to the procedures and reference materials stated in the OSM Bonding Handbook, and they do not have their own specific state guidance documents. Colorado uses OSM’s bond calculation procedures. Each state indicated reclamation cost estimates are reviewed for adequacy at least as frequently as the OSM requirements which are at renewal and during mid-term reviews (at least every 2.5 years). However, North Dakota and Wyoming review the adequacy of all permit reclamation costs every year following the updating of their state guidance documents. Except for the single instance of the Two Bull Ridge (Alaska) permit review, for which the adequacy of the bond amount could not be determined, all bonds reviewed by WR engineers seemed reasonable, 5

and similar to the independently-determined OSM estimates. Even with the differences in what a state considered as “Indirect”, administrative or other add-on costs, the estimates had differences of no more than about 10% of what the reviewers calculated independently. There are no outstanding required program amendments or 30 CFR 732 notifications related to bond adequacy in any WR states. The OSM Field Offices and state offices have not received any citizen complaints related to bond adequacy in recent years. None of the states had changed their reclamation bond cost estimation methodology since the last comprehensive OSM review. Other than Utah, none of the reviewed states have postmining pollutional discharges. Utah has a single instance where they very recently have required a permittee to calculate the cost to remediate the discharge into a stream. The reviewers did point out minor concerns about specific line items that might potentially affect the estimates amounts, and need to be considered in forthcoming reviews of the bond amounts. This included a single instance where all of a permittee’s material units were in bank cubic yards (North Dakota) or where all equipment production rates were modified from what the state had approved for use (Montana). In Utah and Alaska, there is a need to retain copies of supporting documentation for each reclamation cost estimate. New Mexico, North Dakota and Alaska should provide more detail for what is required and the time frames associated with each stage of reclamation. In Wyoming comprehensive cost estimate reviews should be performed by the state at least twice within the permit term. Each of these points was discussed and agreed upon by the appropriate state staff either during the office review and discussion about each permit, or during the closeout meeting. During office visits, the WR reviewers interacted with the state staff responsible for calculating bond amounts. The WR staff found in half the states, there is limited technical staff to calculate bond amounts. A number of the WR states are undergoing furloughs and layoffs. In a couple of states, the staff is relatively new and asked basic questions about calculating bond amounts. A WR reviewer and a Utah engineer worked together to complete the bonding oversight evaluation, which resulted in effective training for the state engineer. In other states, OSM was able to answer questions about amounts that can be released for each phase of reclamation and the amount to be retained following a release. Discussions covered and what type of information must be included in operation and reclamation plans related to the reclamation cost estimate. In New Mexico, the staff engineer who had evaluated all the state’s coal reclamation cost estimates was transferred to another division, and as a result, there no longer is any staff to do any cost estimating evaluations. WR offered to provide assistance in evaluating reclamation cost estimates and calculating bond amounts as they are submitted in the future. Following review of bond calculation documents, the reviewers asked the Bonding Work Plan prewritten questions aimed at evaluating the state’s procedures for determining adequate reclamation bond amounts used in support of each posted bond (or other bonding instrument) amount. The reviewers found the amount of bond being held may exceed the amount of the bond amount calculation. In some cases, permittees post a bond (or other bonding instrument) in an amount higher 6

than the actual calculated amount of the bond to allow for any increases in the calculated bond amount due to future permit revisions that might occur. This practice of “over-bonding” allows permittees to reevaluate the reclamation cost estimate and states to recalculate the bond amount without the permittees having to resubmit their bonding contractual agreements to their corporate offices for approval each time there is an incidental increase in the bond amount. This practice remains at the discretion of the permittee. Not all “Indirect” costs are calculated in the same manner suggested by the OSM Bonding Handbook. However, in all cases, the same types of costs are included as Indirect, administrative or other add-on costs, or simply as part of the direct cost calculation. In some cases, the state determines an actual cost, rather than percentage for a specific type of add-on cost, such as mobilization/demobilization. In other cases, costs including profit, overhead and labor benefit costs are included in the hourly direct costs, thus these are not added later as an Indirect-type cost. OSM found that all WR states have procedures in place to ensure the thorough and comprehensive calculation of bond amounts for all phases of reclamation, and bond amounts are re-evaluated by state staff as part of each annual report, revision, renewal, midterm or request to release review. In most cases, the bond amount calculations were substantiated by detailed information explained in operation and reclamation plans, including things such as mining projections, mining methods, pit dimensions, facilities maps, and details such as equipment haul distances, equipment productivity factors, and sources of costs including seed and labor rates. With one exception, OSM determined that bond amounts were adequate. However in a few instances, it was suggested that some states do follow-up on some minor variances noted in a permittees reclamation cost estimate or getting updates to the reclamation plan during their next comprehensive review of those documents. In one instance, where no supporting data could be located, OSM was not able to determine whether the bond amount calculation or the amount of the bond being held were adequate.

Summary of State Oversight Evaluation Findings
Alaska
The only operating coal mining company in Alaska is the Usibelli Coal Mine. This review concentrated on the Two Bull Ridge Mine, a separate permit within the Usibelli mine complex. Bond Adequacy Findings The state of Alaska uses the OSM Bonding Handbook methodology to calculate bond amounts. The mining staff is all relatively new and is still learning about the complexities of the bond calculation process. The state uses the R.S. Means Heavy Construction Cost Guide (adjusting for the state and region), the PRIMEDIA’s Cost Reference Guide (CRG) - Rental Rate Blue book (adjusting for the region 7

within Alaska), and the State’s Labor Rates (Title 36). Bond amounts are reviewed at the time of renewal and mid-term of each permit, as well as anytime there is a revision to a permit. The equipment, labor and demolition costs used were reviewed, but OSM was not provided information to verify volumes, distances or hours which supported the overall cost estimate. For the purpose of this review, the volumetrics provided by the mine permittee in their reclamation cost could not be verified. There are no outstanding required program amendments or 30 CFR Part 732 notifications related to bonding. Neither the Denver Field Office nor the state has received any citizen complaints related to bond adequacy in the past 3 years. Alaska has not changed its bond calculation methodology since the last comprehensive OSM review and is still using OSM’s recommended worst-case scenario as the basis for their calculations. Department of Natural Resources – Division of Mining, Land and Water (DMLW) staff prepares independent, internal reviews to verify the reclamation cost estimates provided by their permittee with multiple permits. The DNR uses the OSM Bonding Handbook recommendations for the determination of all Indirect costs, including mobilization/demobilization, engineering redesign, contingency, profit and overhead, and reclamation management fee costs. In addition, DMLW also adds a 10% administrative fee. No financial assurance is provided for postmining pollutional discharges as none exist nor are expected. The current bond amount was based on the state’s bond cost estimate calculated using the OSM Bonding Handbook methodology. However, because no supporting documentation was provided, it was not possible to verify any of the Direct costs. Alaska has not had a bond forfeiture, thus there is no forfeiture of bond to review. Although the process is similar to OSM’s, it could not be determined whether Alaska is in compliance with their bond adequacy regulations because the bond amount for this permit could not be verified.

Colorado
The OSM Team reviewed the state of Colorado Division of Reclamation, Mining and Safety (DRMS) program for implementation of bond adequacy at 5 mine sites. The permits (one permit per mine) reviewed included Bowie No. 2, Foidel Creek Mine; Elk Creek Mine, Yost Mine, and West Elk Mine. Bond Adequacy Findings The state of Colorado uses the OSM’s Bonding Handbook procedure to calculate bond amounts statewide, and through their use of their automated “CIRCES” software program which calculates the costs, their bond calculation estimates are based on a mines operation and reclamation plan for each permitting action. The software provides for use of assumptions and efficiencies, as suggested by OSM’s Bonding Handbook when calculating hourly costs for equipment. Wages are set by the Colorado Department of Transportation each year and all costs, including proprietary reference materials used in the software, are updated annually in the fall. Demolition costs are determined using the Means Site Work & Landscape Cost Data Guide. 8

For lands fully reclaimed but not yet released, each bond calculation includes a total of 150% of the full cost of topsoiling, scarification and seed for the area not yet released from Phase III bond. The OSM team reviewed the state’s equipment productivity and the equipment, labor and demolition costs, and found these to be essentially the same costs as those used by OSM. Full bond evaluations are performed by the state at mid-term and renewal (year 2.5 and 5 of the 5-year permit term). The OSM reviews included a mid-term review, a significant technical revision, a minor revision, and Phase 1 bond release. After conducting a detailed review, OSM determined that the state of Colorado’s process for evaluation of mining permit bond amounts is adequate to ensure bonded areas can be reclaimed as required in the approved reclamation plans. There are no outstanding required program amendments or 30 CFR 732 notifications related to bonding, nor are there any postmining pollutional discharges. There have been no public inquiries regarding bond adequacy. Colorado is in compliance with their bond adequacy regulations.

Montana
The OSM bonding oversight review team reviewed the state’s bond calculations, and the operation and reclamation plans for the Rosebud Mine - Area D; Decker West Mine, and the Spring Creek Mine. Bond Adequacy Findings The state of Montana uses the same estimating procedures as those specified in the OSM Bonding Handbook. Reclamation cost estimates submitted by each permittee are reviewed by state personnel and evaluated for adequacy at renewal, mid-term, and when there are significant revisions or cost variances throughout the permit term. Montana issues a permit for a 5-year term so all bonds are reviewed at a minimum of every 2.5 years. The demolition costs, equipment productivity and hourly equipment and labor rates were reviewed, with the bond calculation amount reflecting the worst-case scenario of each operation. For each of these mines, the current disturbance is in years 4 and 5, thereby nearing the final mining and reclamation for each mine. Generally, there are no post-mine structures to be left, including ponds. No inflation factor was included in these estimates, but bonds are evaluated when revisions or amendments are approved, and when economic factors such as significant changes in fuel costs occur in a short period of time. The operation and reclamation plans spell out what roads and ponds will be left and what structures will be downsized if they are to be left. All estimates include costs similar to those specified in the OSM Bonding Handbook for determining Indirect costs. The revegetation costs are based on the requirements of the reclamation plan.

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The reclamation cost estimates for the permits reviewed, the basis of the state’s bond amount for each, were each in a different format but the dollar amounts were similar to the independent OSM cost estimate which took into account the costs at the time of the original review. In addition to the calculation of Direct costs, the state adds an Indirect cost for post-mine monitoring, mobilization/demobilization, profit & overhead, project management fees, engineering redesign fees, and contingencies. Montana also adds long-term monitoring and maintenance costs. There are no outstanding required program amendments or 30 CFR 732 notifications related to bonding, nor are there any postmining pollutional discharges. Any instances of pollutional discharges during mining would require a mandatory permit revision. There have been no public inquiries regarding bond adequacy. Montana has not had a bond forfeiture in approximately 15 years. Montana has not changed its reclamation bond costs estimation methodology since the last comprehensive OSM review. Montana is in compliance with their bond adequacy regulations.

New Mexico
The OSM bonding oversight review team reviewed the state’s bond cost calculations for the permit renewal in 2008, and the operation and reclamation plans for the El Segundo Mine, a truck/shovel operation. No revisions or phase releases were reviewed during this oversight evaluation. Bond Adequacy Findings The state of New Mexico uses the OSM Bonding Handbook methodology to calculate bond amounts and has a set of guidelines (Guidelines for Bond Calculation) which are used for consistent calculation of bond amounts. Those guidelines are based on the OSM Bonding Handbook methodology and were followed during the verification of this bond amount. As of now, the permittee’s reclamation cost estimates and the state’s bonds amounts are regularly reviewed in Annual Reports, and at mid-term with current topographical maps that show the up-to-date disturbance, which can be compared to the approved plan for mining progress and worst-case disturbance. New Mexico has not changed its bond cost calculation methodology since the last comprehensive OSM review. The reclamation plan identifies costs included in the reclamation cost estimate, including structures approved to be left in place, as well as the types of plants to be established after mining is complete. The permittee’s reclamation cost estimate includes Indirect costs consistent with OSM’s Bonding Handbook. The reclamation cost estimate also includes a cost to replace 50 percent of vegetation. No financial assurance is provided for postmining pollutional discharges as none exist nor are expected. There are no outstanding required program amendments or 30 CFR 732 notifications related to bonding, nor have there been any public inquiries regarding bond adequacy. There have not been any bond forfeitures in over 25 years.

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The permittee has posted 4 million dollars more than the total estimated cost of reclamation and has fully bonded the entire site for maximum disturbance, even though only less than half the area is disturbed. The NM program is in compliance with their bond adequacy regulations.

North Dakota
The OSM bonding oversight review team reviewed the state’s bond cost calculations, and the operation and reclamation plans for the Beulah Mine, Center Mine and the Falkirk Mine. In North Dakota, most “mines” are made up of a multiple permits, and each permit is bonded independently or consolidated with other permits at the mine. Bond Adequacy Findings The North Dakota Public Service Commission (PSC) uses their guidance document, Policy Memorandum No. 16, to specify the costs to be included in each reclamation cost estimate submitted to them for approval. The variable cost estimates are reviewed and updated, if necessary, in July of each year. This guidance document sets equipment type, costs and production factors, as well as labor rates and materials. North Dakota uses state-accepted sources to update their reclamation costs. Through the Phase I, II & III bond releases, the PSC retains $200/acre on all undisturbed acres within the permit. The reclamation cost estimates in approved permits are reviewed by the Reclamation Division at permit midterm, renewal, when significant mine plan or reclamation plans are proposed, or when significant changes are made to Policy Memorandum No. 16 to ensure the bond amounts remain adequate. If they are found to be inadequate, the permittees are required to increase the bond amount. The PSC does not follow the OSM Bonding Handbook line items for Indirect Costs, but does consider the same types of costs in their reclamation cost estimates. Overall, OSM determined the range of North Dakota’s comparable “Indirect” costs from the permits reviewed, to be in the range of 22-30% of their respectively calculated Direct costs. Policy Memorandum No. 15 provides guidance on the release of lands used for ash disposal, as was the case in one of the reviewed permits. No financial assurance is provided for postmining pollutional discharges as none exist nor are expected. There are no outstanding required program amendments or 30 CFR 732 notifications related to bonding, nor have there been any public inquiries regarding bond adequacy. North Dakota has only had one bond forfeiture, which occurred in 1994 for a very small mine. The bond amounts reviewed in North Dakota were adequate to complete reclamation as approved in the operation and reclamation plans.

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Utah
The OSM bonding oversight review team reviewed the state’s bond cost calculations, the operation plan and the reclamation plan for the Coal Hollow Mine, Lila Canyon/Horse Canyon Mines, and Star Point Mines 1 & 2. Bond Adequacy Findings The state of Utah’s Division of Oil, Mining and Gas (DOGM), has developed Directives “Calculation Guidelines for Determining Reclamation Bond Amounts (Tech-007)” to provide guidance in preparing their bond cost calculations and “Requirements for Phased Bond Release (Tech 006)” to determine how much of the bond should be released through phase releases to ensure monies are retained to complete all required reclamation. The bond cost calculations Directive (guidance document) suggests the bond amount be evaluated at the time of renewal, mid-term, and if costs or mining procedures dramatically change during the permit term. Bond amounts are based on the worst-case scenario as detailed in the operations and reclamation plans, but the DOGM is authorized to routinely evaluate the bond adequacy and require adjustments as needed. As with OSM’s reclamation cost calculating methodology, Utah’s Indirect costs are a percentage of the calculated Direct costs. An escalation factor is included in each bond calculation. The directive for phased-bond release provides guidance on how to estimate of amount the bond to be retained to cover the remainder of reclamation. While performing the bonding oversight, OSM engineers provided training to DOGM staff, explaining what is considered when calculating a complete, mine-wide reclamation bond calculation. There are no outstanding required program amendments or 30 CFR 732 notifications related to bonding. Neither the OSM Field Office, nor the DOGM have received any citizens complaints related to bond adequacy in the past 3 years. Before the current bond cost estimator began to evaluate bond adequacies, the engineer person in charge of bond cost calculations held the position for 20 years and the methodology did not change during that time. There have been no bond forfeitures in recent years. The permittee’s reclamation cost estimate and the operation and reclamation plans contained sufficient detail to calculate a bond amount. Utah’s methodology is in compliance with their bond adequacy regulations.

Wyoming
The OSM bonding oversight review team reviewed the state’s bond cost calculations, and operations and reclamation plans for the Black Thunder Mine, Wyodak Mine, Carbon Basin Mine, Eagle Butte Mine, and Spring Gulch Coal Mine. 12

Bond Adequacy Findings The state of Wyoming, Land Quality Division (LQD) uses Guideline No. 12, “Standardized Reclamation Performance Bond Format and Cost Calculation Methods”, as guidance to calculate consistent statewide bond amounts. Guideline 12 provides annually-updated costs for equipment, labor, demolition and materials required in typical Wyoming coal mine reclamation practices. Wyoming requires each of its permittees to submit an Annual Report, which includes an updated reclamation cost estimate for each permit. Wyoming refers to the costs for the backfilling and rough grading the active pit as the “area bond”, and the cost for the reclamation of everything other than those areas, including facilities, roads, and ponds, as the “incremental bond”. Wyoming’s reclamation costs are identified and set in their guidance document. Each bond amount is based on the permittee’s reclamation cost estimate in the Annual Report and is for one year of disturbance. Revisions are addressed in the Annual Report as a proposed activity during the reporting period. If an emergency revision comes in it is evaluated to determine if it will affect the bond. The bond amount is increased when necessary. In areas that are fully reclaimed, but have not yet undergone any phase release, Wyoming retains the full amount of the bond amount as though all earthmoving, topsoiling, scarification, and revegetation have yet to be started. OSM found Wyoming’s reclamation cost estimate contained sufficient detail to calculate a complete bond cost, and each amount was adequate. No financial assurance is provided for postmining pollutional discharges as none exist nor are expected. There are no outstanding required program amendments or 30 CFR 732 notifications related to bonding, nor have there been any public inquiries regarding bond adequacy. Wyoming has not had a bond forfeiture in recent years.

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Appendix 1: Bonding Oversight Evaluation Baseline Questions
Questions to be answered: Background information: 1. Is there a clear understanding by the regulatory authority and OSM as to the methodology that the state is using to calculate required bond amounts? 2. Are there any outstanding required program amendments or 30 CFR Part 732 notifications related to bonding? 3. Has the Field Office or State received any citizen complaints related to bond adequacy in the past 3 years? If so, what was the ultimate outcome of those complaints? 4. Has the State revised its bond calculation methodology since the last comprehensive OSM review? Bond calculation: 1. Has the bond calculation considered all features and structures in the approved plan, including whether roads and impoundments will be permanent? 2. Does the calculation include the costs of mobilization, demobilization, engineering redesign, and contractor profit and overhead? 3. Are the revegetation costs in the bond calculation consistent with the approved revegetation plan? 4. What type of financial assurance is provided for any postmining pollutional discharges, and how is the amount of that assurance calculated? 5. How does the bond amount compare with that calculated using the OSM Bonding Handbook? 6. Is the reclamation of bond forfeiture sites being done in conformance with the approved reclamation plan for the site? Are differences due to the inadequacy of the bond or available resources from the alternative bonding system?

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Summary: • Is the State properly calculating bond amounts to ensure proper site reclamation?

Final Report: 1. A succinct description of how the state’s bonding program operates relative to bond calculation and adjustment. 2. A description of evaluation techniques, including sample selection.

3. Findings, including a conclusion as to whether the state’s method of calculating bond
amounts for permits and permit revisions ensures that sufficient funds are available for completion of the reclamation plan in the event of bond forfeiture.

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Appendix 2: State Specific Bonding Oversight Evaluation Reports
Note: Header of permits reviewed include (as available): Permittee Name; Mine Name; Permit Number; Permit Term: Annual Report or Bond Term Dates, Permit Action Reviewed

Alaska
Review of State Documents The state of Alaska uses the OSM Bonding Handbook methodology to determine bond amounts. The summary page of the Usibelli Coal Mine’s (UCM) reclamation cost estimate reflects that methodology when it calculated the original (2005) and revised (2007) reclamation cost estimates for the Two Bull Ridge permit (TBR). The state uses the R.S. Means Heavy Construction Cost Guide (adjusting for the state and region), the Cost Reference Guide (CRG) - Rental (adjusting for the region within AK), and the state’s Labor Rates (Title 36). The Department of Natural Resources-Division of Mining, Land, and Water (DMLW), reviews adequacy of bond calculation at the time of renewal and mid-term of each permit, as well as anytime there is a revision to a permit. The 2007 review was for a permit revision which did affect the amount of posted bond. The table from the state’s Annual Report for TBR indicates from July 2008 to June 2009, 38 new acres were disturbed and 8.2 were reclaimed within the TBR permit. For the years 2007 through 2009, a total of 416.7 acres was disturbed, and a total of 37.1 acres was backfilled and graded. The entire permit is for a total of 2,749 acres. The equipment, labor and demolition costs used in the permittee’s 2005 and 2007 reclamation cost estimates were reviewed but neither the permittee’s nor DMLW documents provided information to verify volumes, distances or hours in support of the overall reclamation cost estimate or bond amount. For the purpose of this review, the volumetrics provided by the mine permittee in their reclamation cost estimate could not be verified. The operation and reclamation plan for this permit were reviewed, though much information was missing, including whether roads were to become permanent (and if so, to what final design and at what cost) and whether wells or piezometers are permanent installations. In addition, no mining or reclamation schedules were provided or referenced in the TBR permit. The reviewed permittee’s reclamation cost estimate was to reflect the worst-case scenario of operation in year 5, which is 2010. Usibelli Coal Mine, Inc., Two Bull Ridge Mine (TBR), Permit Number S-0603, Bond Term 2005-2010, Permit Term 2005-2010 A detailed review of the permittee’s reclamation cost estimate was completed by Alaska staff at the time of the 2007 revision, but a copy of their bond calculation documentation was not available to OSM staff. Most recently, in 2007, UCM posted a $4.905 million bond, of which $3.5 million is Direct costs (earthmoving & revegetation), $1.007 million is Indirect costs (mobilization/demobilization, contingencies, engineering redesign, profit & overhead, reclamation management fee), and $376,859 is 16

Sub-contractor costs (seed & fertilizer, demolition, administrative fee). Neither inflation, nor long-term monitoring costs were included in this reclamation cost estimate. The revised 2007 reclamation cost estimate of $4.5 million indicates using a dozer to move 5 million bank (not loose) cubic yards of fill material. However Karen Jass’ visit to the field indicates that the amount of material that must be moved will be greater than that stated by the mine permittee, that there is only a very small area that has been graded and temporarily vegetated, and that no area has been fully reclaimed. Push distances for backfill or topsoil material will be long and will result in greater costs than those stated in the permittee’s reclamation cost estimate. OSM could not verify the adequacy of the amount of the bond held by Alaska because insufficiently detailed information was provided in both the permittee’s reclamation cost estimate document and operation and reclamation plans, and because the state’s bond calculation was not available. The TBR permit is due for renewal this year, and as part of that review by the state, it is suggested that OSM be involved in a detailed review of the Two Bull Ridge reclamation cost estimate, including the verification of the volumes of material to be moved. This will assure that the state of Alaska is provided the protection of an adequate bond being posted for the purpose of mine reclamation. DMLW did agree that additional information must be provided in both the operation and reclamation plans, and in support of the permittee’s reclamation cost estimate. As the TBR permit is due to be renewed later this year, DMLW has indicated it will thoroughly review the information submitted to assure that it comprehensively addresses the reclamation work to be done, including all associated costs. DMLW indicated it has ArcGIS files for the pre- and current-mining surfaces and will be able to determine the volume of material which must to be moved to attain the approved post mine regraded surface. Based on the location of the dragline at the time of the field visit (March 31 & April 1, 2010), this pit is nearly mined out and essentially at its maximum disturbance. All existing disturbance should be evaluated for bond adequacy during the upcoming permit renewal review. There are no issues with acid materials. The greatest issue with this operation is slope stability because the material is loose sand and stone, which erodes very easily during the short bursts of summer rain. Pond and sump cleanout is constant, something that must be included as a yearly cost in the reclamation plan until final, fully revegetated reclamation surfaces are established. The state of Alaska, as the landowner, requests that the mining company leave all roads as access to hunting and other areas after the completion of mining, and this must be stated in the reclamation plan. TBR is a dragline and truck/shovel mining operation which has a maximum annual production of 2 million tons, with a life of permit estimate of 42 million tons. Topsoil is stockpiled but no map of those stockpiles was provided. The permit does state that at least 12” of topsoil will be replaced on all disturbed areas. To assure the adequacy of the bond amount and the bonding instruments, OSM should review the outcome of the state’s permit renewal evaluations for all Usibelli Coal Mine permits.

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Oversight Work Plan Questions Background information: 1. Is there a clear understanding by the regulatory authority and OSM as to the methodology that the state is using to calculate required bond amounts? Yes, Alaska uses the OSM Bonding Handbook as its guidance. However the mining staff is all relatively new and is still learning about the complexities of the bonding process and the necessity of detailed information in the approved permit. 2. Are there any outstanding required program amendments or 30 CFR Part 732 notifications related to bonding? No, there are no outstanding required program amendments or 30 CFR Part 732 notifications related to bonding. 3. Has the Field Office or State received any citizen complaints related to bond adequacy in the past 3 years? If so, what was the ultimate outcome of those complaints? No complaints were received related to bond adequacy. 4. Has the State revised its bond calculation methodology since the last comprehensive OSM review? No, Alaska has not changed its bond cost calculation methodology since the last comprehensive OSM review, and still uses OSM’s recommended worst-case scenario as the basis for their calculations and determination of the bond amount. However, DMLW has used outside contractors who did cost estimates in the past. Bond calculation: 1. Has the bond calculation considered all features and structures in the approved plan, including whether roads and impoundments will be permanent? Yes, DMLW staff indicated they normally prepare an independent bond cost calculation to determine the bond amount for each permit. This would consider the costs to attain the requirements of the reclamation plan, and identify things like post-mine structures (including the cost to downsize) or the type of fencing to be installed. 2. Does the calculation include the costs of mobilization, demobilization, engineering redesign, and contractor profit and overhead? Yes, the Alaska permittee essentially followed the OSM Bonding Handbook recommendations for the determination of all Indirect Costs including mobilization/demobilization, engineering redesign, contingency costs, contractor profit and overhead, and the reclamation management 18

fee. In addition, they also add a 10% administrative fee. Because in this case, all the Indirect costs are a percentage of the total Direct costs, the accuracy of the Direct costs is crucial to assure overall bond adequacy. 3. Are the revegetation costs in the bond calculation consistent with the approved revegetation plan? It seems that for the 400 acres of disturbance within the TBR permit, the cost per acre ($757) should be adequate for revegetation of the types of seed and trees required. The cost per acre includes $30,102 for seedbed preparation and $285,450 for aerial seeding and fertilization. However, as was noted with dozer costs, no supporting information was provided other than the list of plants required by the reclamation plan. It isn’t clear whether a failure cost is included in this overall cost of revegetation. The costs considered as revegetation should be evaluated in the state’s review of the permit later this year to assure the inflated costs in Alaska are considered. 4. What type of financial assurance is provided for any postmining pollutional discharges, and how is the amount of that assurance calculated? No financial assurance is provided for postmining pollution discharges as none exist nor are expected. 5. How does the bond amount compare with that calculated using the OSM Bonding Handbook? The current bond amount includes reclamation costs calculated using the OSM Bonding Handbook methodology. However, because no supporting documentation was provided, primarily the volumes and distances of material to be moved which have the largest impact on the Direct costs, OSM could not calculate a bond amount. . In addition, the permit had very little information detailing what type of reclamation is to be performed, what post mining structures are approved to be left, or even what has been accomplished to date. The permit did not contain any text which provided details about the schedule of mining and when reclamation would follow completion of mining, nor did it contain any maps or schematics which showed the location or extent of mining, or the reclamation schedule within the permit term. Only the 2008 and 2009 Annual Report tables, with the number of disturbed and regraded-to-date acres, were provided to OSM by the state during the office visit, and then by the permittee during the mine visit. It was not possible to determine a reclamation cost. However, the amount of disturbance observed in the field would seem that the worst-case reclamation cost has been underestimated by the mine permittee, which is the basis for the state’s determining the amount of bond to be posted. 6. Is the reclamation of bond forfeiture sites being done in conformance with the approved reclamation plan for the site? Are differences due to the inadequacy of the bond or available resources from the alternative bonding system? Alaska has not had a bond forfeiture, thus there is no forfeiture of bond to review.

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Colorado
Review of State Documents The state of Colorado uses the OSM’s Bonding Handbook calculation procedure to determine bond calculations, and through their use of their automated “CIRCES” software program, Colorado’s Division of Reclamation Mining and Safety (DRMS) staff determine all bond amounts based on their calculated cost of reclamation. The bond amounts are based on a mine’s operation and reclamation plan for each permitting action. For demolition costs, the most recently published Means Site Work & Landscape Cost Data Guide was used to determine unit costs. The CIRCES software provides for assumptions and efficiencies, as suggested by the OSM Bonding Handbook, when calculating hourly costs for equipment. Wages are set by the Colorado Department of Transportation each year and all costs (including proprietary reference materials) used in the software are updated annually. The OSM staff reviewed the equipment productivity, and the equipment, labor and demolition costs. These Colorado specific costs were determined from the same reference sources suggested by the OSM Handbook. The same thorough evaluation of the bond adequacy is performed by the state for all permit actions that may affect the reclamation costs. Full bond evaluations are normally performed at midterm and renewal (year 2.5 and 5 of each 5-year permit term), or if a major revision affects the cost of reclamation. For lands fully reclaimed but not yet released each bond estimate includes a total of 150% of the full cost of topsoiling, scarification and seeding the area not yet released from Phase III bond. The reviews included a mid-term review, a significant technical revision, a minor revision, and Phase 1 bond release. Colorado is in compliance with their bond adequacy regulations. On-Site Office Visit Bowie No. 2, Permit No. C1996-083, Mid-term Review (Nov. 3, 2009) This is an underground, longwall operation with numerous surface structures that must be removed as part of final reclamation. The total permitted acreage is 5,865 acres and the total life-of-mine disturbance is projected at 3,985 acres. The permittee has an estimated reclamation cost of $8,707,741 to cover the cost of all reclamation specified within the reclamation plan, and includes costs that OSM considers Indirect costs (mobilization/demobilization, profit & overhead, management fees) which total $1,753,133. The Direct costs are $6,954,608. There are some pre-mine ponds, wells and forest service roads approved to be left, but all other mining structures will be reclaimed (coal refuse waste disposal areas) or removed (including shafts, dewatering pipes and buildings). No AMD is expected. Topsoil and stockpiled backfill material is replaced to a total depth of 4 feet before seed bed preparation or seeding begins. This mine began operating in 1977 and had an estimated annual production expected to be between 5-6 million tons per year. However in 2008, production was 2.8 million tons and in 2009, production was about 1 million tons. 20

Foidel Creek Mine, Permit No. C19820056, Minor Revision (Nov 2, 2009) This is an underground, longwall operation. This review was to evaluate the adequacy of a reclamation cost estimate, triggered by a minor revision in November 2009. This reclamation cost estimate, for an area already within a bonded area of disturbance, included the additional cost for the removal of structures, pavement, backfilling, regrading, topsoil replacement and vegetation associated with the proposed revision. The permittee has an estimated reclamation cost of $8,443,851 to cover the cost of all reclamation specified in the reclamation plan permit area. In this revision for the addition of a security gate, the state’s bond cost calculation was $14,275, of which $1,300 was the Indirect and administrative costs. The projected annual production was 10-12 million tons. However, 2008 production was 8 million tons per year and 2009 production was 7.7 million tons. The total permitted acreage is 19,940 acres, the affected total life-of-mine area is projected at 19,398 acres, and the total disturbed acreage through the date of this revision was 595.9 acres. Oxbow Mining Inc., Elk Creek Mine, Permit No. C1981022, Technical Revision TR-63 Technical Revision TR-63 (permit revision) was an application to create gob vent boreholes and their access roads. The twenty-three drill holes will have a pad disturbance totaling 10 acres, and access roads to the pads will disturb 9.4 acres. Colorado calculated a total bond amount of $336,520 of which $264,075 are Direct costs for grading and seeding, and $48,967 are Indirect costs. Due to the requirements of this revision, the disturbance will be a minimum. Seneca Coal Company, Yost Mine, Permit No. C-94-082, Phase I Release This was a dragline surface mine. The mine operated from 1995 through 2006 and produced 7,717,110 tons of coal. The total permitted acres were 2,318.0, with 1,019.0 acres permitted for disturbance. However, only 848.6 acres were actually disturbed. To determine the appropriate amount of Phase I release, Action No. SL-02, Colorado used their “CIRCES” software, with updated reclamation costs to account for inflation, to determine that the new bond amount would be $4,305,484. Colorado then calculated the cost to reclaim all remaining disturbance and the value of the reclamation being released. Since the value of the reclamation to be released was less than 60 per cent of the total bond amount, and the amount of bond remaining after the release was more than the cost to complete reclamation, they authorized the Phase I bond release in the amount of $790,205.00 for 460.8 acres. Mountain Coal Company, LLC, West Elk Mine, Permit No. C-80-00, Technical Revision TR-118 This minor revision was to allow construction of a wash plant, a laboratory building, a 5,000-ton temporary coal stockpile, and construction of conveyor belts on top of the Lower Refuse Pile. The reclamation cost estimate for the Lower Refuse Pile had already been included in the state’s existing bond calculation. Colorado used “CIRCES” to calculate the proposed reclamation costs for that area, but because the wash plant and all associated disturbance will be within the surface disturbance of the 21

existing Lower Refuse Pile, the reclamation cost estimate for TR-118 did not include topsoiling, seed bed preparation or revegetation costs. Those costs had already been considered and included in the existing reclamation liability amount of $12,400,676 for permit C-80-007. In this case, the reclamation liability increased with the approval of TR-118, but the bond amount being held did not. The applicant originally posted a bond in the amount of $14,500,000, an excess of $2,099,324 above the required amount needed to cover the projected cost of reclamation. The Direct costs for TR-118 were $351,012 and the Indirect costs were $90,239, for a total reclamation cost estimate of $441,251. The cost of reclamation for TR-118 was applied against the $2,099,324 above the required reclamation cost, reducing the excess bond amount to $1,650,073. Oversight Work Plan Questions Background information: 1. Is there a clear understanding by the regulatory authority and OSM as to the methodology that the state is using to calculate required bond amounts? Yes, Colorado is following OSM’s reclamation cost estimate procedures, and includes the Indirect costs suggested by the OSM Bonding Handbook. Although the “CIRCES” software printed worksheets are in a format different than OSM’s worksheets, all costs are included as suggested by the OSM Bonding Handbook. 2. Are there any outstanding required program amendments or 30 CFR Part 732 notifications related to bonding? No, there are no outstanding required program amendments or 30 CFR Part 732 notifications related to bonding. 3. Has the Field Office or State received any citizen complaints related to bond adequacy in the past 3 years? If so, what was the ultimate outcome of those complaints? No. 4. Has the State revised its bond calculation methodology since the last comprehensive OSM review? No, Colorado has not changed its bond cost guidance or software since the mid-1990’s, with exception of yearly cost updates, since the last comprehensive OSM review. Bond calculation: 1. Has the bond calculation considered all features and structures in the approved plan, including whether roads and impoundments will be permanent? Yes, regardless of the scale of the reclamation estimates we reviewed, the estimate addressed everything that needed to achieve what was highlighted in the approved reclamation plan. 22

2. Does the calculation include the costs of mobilization, demobilization, engineering redesign, and contractor profit and overhead? Yes. In Colorado, mobilization/demobilization costs are calculated as a direct cost line item, but the Indirect costs include insurance, posting a bond, the supervisory costs, profit, and finally the legal/engineering/project management costs, which consist of engineering work/bid preparation and reclamation management/administration costs. 3. Are the revegetation costs in the bond calculation consistent with the approved revegetation plan? Yes, the vegetation costs appeared to reflect the types of plants specified in the approved reclamation plan, and the costs of the various seed or plant types were updated by state. 4. What type of financial assurance is provided for any postmining pollutional discharges, and how is the amount of that assurance calculated? No financial assurance is provided for postmining pollutional discharges as none exist nor or expected. 5. How does the bond amount compare with that calculated using the OSM Bonding Handbook? The current bond amount includes all costs that would be calculated using the OSM Bonding Handbook worksheet despite the formatting difference between the worksheet and summary documents. The bond is evaluated at least every 2.5 years. Assuming all reclamation is identified through the reclamation plan, the estimate reflects what must be done for this proposed reclamation. 6. Is the reclamation of bond forfeiture sites being done in conformance with the approved reclamation plan for the site? Are differences due to the inadequacy of the bond or available resources from the alternative bonding system? There are no forfeiture of bonds to review in Colorado.

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Montana
Review of State Documents The state of Montana uses the same estimating procedures as those specified in the OSM Bonding Handbook methodology. Mine permittee reclamation cost estimates are reviewed and evaluated for adequacy by state personnel at permit renewal and mid-term, at least every 2.5 years and if there are significant revisions or significant cost variances. Calculations are based on the worst-case projections within each permit term. OSM reviewed the operation and reclamation plans for three mines: Decker West, Spring Creek, and Rosebud - Area D, including demolition costs, equipment productivity, and hourly equipment and labor rates. OSM assumed that volumetrics and acreages provided by the mine permittee, generated by modeling software, were correct in each estimate and had been verified by the state engineer. In addition, the bond calculation reflects the worst-case scenario of each operation, although the disturbance among the three permits is currently nearing the end of their 5-year permit term. No inflation factor was included in any estimate, but OSM was informed that when revisions or amendments are approved, the reclamation cost estimates are reviewed for adequacy, as well as when economic factors such as increases/decrease in fuel costs radically change in a short period of time. Generally, there are no post-mine structures to be left, including ponds. In addition to the calculation of Direct costs, Montana adds Indirect costs for post-mine monitoring, mobilization/demobilization, profit & overhead, project management fees, and engineering redesign fees generally in the typical range of 19% to 28%. Long term monitoring or maintenance costs were either included as part of the Direct costs, or as a percentage added on as an Indirect cost, depending on the permittee’s submittal. Montana bond amounts were found to be adequate. On-Site Office Visits Rosebud Mine – Area D, Permit Number 86003D, Bond Term 10/07-9/08, Permit Term 2006-2011 This is a dragline operation with numerous surface structures that must be removed as part of final reclamation. The total permitted acreage is 4,554.4 acres, the disturbance to date is 2,992.8 acres, and the projected life-of-mine operation will disturb 6,750 acres. The permittee has a total estimated reclamation cost of $28,660,982 to cover the cost of all reclamation specified within the reclamation plan, and includes Indirect-type costs (post-mine sampling/monitoring, mobilization/demobilization, profit & overhead, project management fees, engineering redesign fees, contingencies) which total $5,474,248. The amount of bond held is $28.6 million. All mining structures will be reclaimed including ponds, roads, wells, and crushing/loadout facilities. No AMD is expected. Topsoil and subsoil is replaced to depth of 4 feet, or over areas of coal or toxic materials, 8 feet of soil is placed. The permit indicates mining will be completed in 2012. In 2008, production was 2,941,749 tons. 24

Decker West Mine, Permit Number 87001C, Bond Term 1/08-12/08, Permit Term 2006-2011 This is a multi-dragline operation with numerous surface structures that must be removed as part of final reclamation. The total permitted acreage is 7,356.8 acres, life-of-mine disturbance of 3838.8 acres and the disturbance to date is 5,432.5 acres. The permittee has an estimated reclamation cost of $77,688,987 to cover the cost of all reclamation specified within the reclamation plan, and includes Indirect-type costs (post-mine monitoring, mobilization/demobilization, profit & overhead, project management fees, engineering redesign fees, contingencies) which total $16,317,014. The permit indicates the life of mine is through 2017, though the state indicated it will be completed within the next 1-2 years. All mining structures will be reclaimed including ponds, roads, the land farm, crushing/loadout facilities, and the dike separating the mine from the Tongue River Lake. No AMD is expected. Topsoil and stockpiled backfill material is replaced to depths ranging from 6” (side slopes), 12-18” (flat surfaces), and 30” (stream channel) before seed bed preparation or seeding begins. The majority of the mine is fully reclaimed with backfill, grading and topsoiling completed; however, Montana still retains the full amount of calculated bond amount, plus $200/acre. In 2008, production was 6,459,064 tons from Pit 16, down from about 10 million tons annually from pits 11, 12, & 16 combined. This was an evaluation of a midterm review. Spring Creek Mine, Permit No. 79012, Bond Term 1/08-12/08, Permit term 2003-3008 This is a dragline and truck/shovel operation that removes coal in 2 benches. Topsoil is removed with scrapers. This is a thin overburden mine, with replacement fill needed to meet the approved post mining surface coming from borrow (South Bluff area) and other areas of the mine. The total permitted acreage is 6,926.2 acres, the life-of-mine disturbance is 4,097.4 acres and the current disturbance is 3,289.6 acres. The total current bond amount being held is $120,267,173. This includes Appendix F (revised 11/06) which shows long-term monitoring costs included in the Direct cost estimate calculations. However, it was noted that Table 1 of the most recent summary of the reclamation cost estimate (dated January 2010, amendment #10-12-01), is for $109,631,295 and includes Indirect costs of $20,500,161 (project design, profit and overhead, mobilization/demobilization, project management, and unknown contingency costs), which would total $130,131,456. Using the provided permittee estimate (Table 2 – Rev 05/07, Tables 3, 4, 5 & Appendices A, B, C, D, E– Rev 11/06, Table 6 – Rev 01/10), OSM did a side-by-side comparison of the numbers as presented, assuming the stated volumes and acres are correct, initially determined a difference of 17.4% between the permittee and OSM total reclamation cost estimates. However, when OSM updated the permittee’s 2007 spreadsheet costs into current dollar values, then the difference between the two estimates was only 10.3% (OSM’s estimate being the higher). Also, in OSM’s evaluation all yardages were converted to loose cubic yards, thus the higher estimate.

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It was noted in this review of the estimate package that many of the permittees stated trucks, loaders, dozers and scraper yardages were in bank cubic yards which may impact the total volume of material to be moved during reclamation. As this permit is due to undergo a mid-term evaluation this year, the state engineer was made aware that this aspect should be reviewed to assure the adequacy of the overall cost estimate for all remaining reclamation. Both the pre-mine and post-mining land uses were and will continue to be grazing, wildlife habitat, and pastureland. After mining, all structures will be removed including the 40 acres of ponds, roads and topsoil stockpiles. All areas will be ripped, and topsoiled with the 21 of pre-stripped zone soils A & B, and then areas will be seeded. Permitted annual coal extraction is up to 20 million tons, however for the reporting period in 2008, a total of 17,947,506 tons of coal were mined. Closure of the mine is expected in 2025. This evaluation was of the permittee’s reclamation costs in the final year in the permit term, as submitted in their Annual Report to the state for that year. Oversight Work Plan Questions Background information: 1. Is there a clear understanding by the regulatory authority and OSM as to the methodology that the state is using to calculate required bond amounts? Yes, Montana uses current reference materials to update their reclamation costs at the time of each review. The Caterpillar handbook, the Montana wage rates, Means Cost Guides, the CRG and local equipment costs are used in their evaluations. 2. Are there any outstanding required program amendments or 30 CFR Part 732 notifications related to bonding? No, there are no outstanding required program amendments or 30 CFR Part 732 notifications related to bonding. 3. Has the Field Office or State received any citizen complaints related to bond adequacy in the past 3 years? If so, what was the ultimate outcome of those complaints? No. 4. Has the State revised its bond calculation methodology since the last comprehensive OSM review? No, Montana has not changed its reclamation bond costs estimation methodology since the last comprehensive OSM review. Bond calculation: 1. Has the bond calculation considered all features and structures in the approved plan, including whether roads and impoundments will be permanent? 26

Yes, the operations or reclamation plans spells out which roads and ponds are to be left, and what downsizing will be required for each structure to be left. The costs to cover the modification of any approved existing structures specified as approved post-mine structures were included in each estimate as appropriate. 2. Does the calculation include the costs of mobilization, demobilization, engineering redesign, and contractor profit and overhead? Yes, all permittee estimates include costs similar to those specified in the OSM Bonding Handbook for determining of Indirect Costs, as well as costs that will be incurred over the life of the project until final release. All estimates include line items for mobilization/demobilization, engineering redesign, contingency costs and contractor/management design, and profit and overhead. In addition, all estimates include some type of long-term monitoring costs. Some estimates include an unknown contingency cost as well. 3. Are the revegetation costs in the bond calculation consistent with the approved revegetation plan? Yes, the revegetation costs are based on the cost of seedbed preparation, then obtaining and distributing seeds and plants identified in the approved Reclamation plan. 4. What type of financial assurance is provided for any postmining pollutional discharges, and how is the amount of that assurance calculated? No financial assurance is provided for postmining pollutional discharges as none exist nor are expected. If discharges occur in Montana, a permit revision will be required to address the sitespecific problem. 5. How does the bond amount compare with that calculated using the OSM Bonding Handbook? The bond estimates submitted by the three permittees are all different in the way each is presented , however when adding up the individual costs each is similar to an independent OSM estimate which takes into account the dates of the costs used. 6. Is the reclamation of bond forfeiture sites being done in conformance with the approved reclamation plan for the site? Are differences due to the inadequacy of the bond or available resources from the alternative bonding system? Montana has not had a bond forfeiture in about 15 years. There are no forfeiture of bonds to review.

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New Mexico
Review of State Documents The state of New Mexico – Division of Mining and Minerals (MMD) uses the OSM Bonding Handbook methodology to determine their bond amount calculations, as well as their “Guidelines for Bond Calculation” guidance document for all reviews that require evaluation of bond amounts. These guidance documents were used by New Mexico staff to calculate in the El Segundo Mine’s bond amount. The state regularly reviews bond amounts, including any updates to the reclamation cost estimates during permit renewal and mid-term reviews, and when Annual Report are submitted. The Annual Reports, which include current topographical maps showing up-to-date disturbance that can be compared to the approved mining plan to verify mining progress and against the approved worst-case scenario disturbance, can be used to determine any changes that may affect the cost of reclamation, and thus the bond amount being held. On-Site Office Visit El Segundo Mine, Permit Number 2005-1, Bond Term 2005-2010, Permit Term 2008-2012 This is a truck/shovel mining operation with loaders to produce a maximum annual production of 7.25 million tons, with a life of mine estimate of 117 million tons. Topsoil is either stockpiled or direct hauled for placement. For the purpose of the bond forfeiture scenario, make up material needed to attain positive drainage in the pit area is assumed to come from spoil areas called “borrow” areas. The cost of moving that material, as well as all associated reclamation, was considered in the state’s calculation to determine the bond amount. The cumulative number of permitted acres is 16,213 acres, and the disturbed acreage is 2,484.8 acres (some of which has been seeded, mulched, and vegetated). The total bond at the time of the 2008 renewal review was $64,420,376, of which Indirect costs were $15,598,336. OSM reviewed the equipment productivity, and the labor and demolition costs, but did not verify the volumetrics or the acreages which the mine permittee generated using modeling software. However, the state engineer said he had done a detailed analysis of this submittal, including a review of all the volumetrics. In addition, OSM reviewed the operation and reclamation plans. The bond amount is adequate to reflect the worst-case scenario of operation in year 5 of the permit term, though disturbance is early in its 3rd year. OSM did note that there was no line item to cover the cost for suitable soil sampling before the placement of topsoil, nor for the sealing of 12 wells identified in the reclamation plan. However, the permittee has posted $4 million over the required reclamation cost amount, which is adequate to cover reclamation of all mining disturbance projected within this permit. The bond amount covers all current and proposed disturbance within the permit, although actual disturbance is currently limited to the facilities area and mining activities in the western section of the 28

permit. There are to be no permanent ponds, and the only roads to remain after reclamation will be the existing haulroad which will be downsized and the pre-mining ranch roads. There is no coal waste, no refuse piles, no embankments or impoundments. No AMD is expected. The railroad is to remain in place, as it is not owned by the mining company.

Oversight Work Plan Questions Background information: 1. Is there a clear understanding by the regulatory authority and OSM as to the methodology that the state is using to calculate required bond amounts? Yes, New Mexico is following its “Guidelines for Bond Calculation” which includes using the OSM Bonding Handbook as a guideline. The methodology for the El Segundo bond Calculation followed the OSM Bonding Handbook. 2. Are there any outstanding required program amendments or 30 CFR Part 732 notifications related to bonding? No, there are no outstanding required program amendments or 30 CFR Part 732 notifications related to bonding. 3. Has the Field Office or State received any citizen complaints related to bond adequacy in the past 3 years? If so, what was the ultimate outcome of those complaints? No. 4. Has the State revised its bond calculation methodology since the last comprehensive OSM review? No, New Mexico has not changed its Reclamation Cost Estimate (Bond Amount) calculation methodology since the last comprehensive OSM review, and still uses OSM’s Bonding Handbook as the basis for their calculations. Bond calculation: 1. Has the bond calculation considered all features and structures in the approved plan, including whether roads and impoundments will be permanent? The reclamation plan spells out what roads are to be left and what downsizing is required for each, and it states that no permanent ponds are to be left. A cost to modify the approved post mining roads, as well as all pond removal was included in the reclamation cost estimate.

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2. Does the calculation include the costs of mobilization, demobilization, engineering redesign, and contractor profit and overhead? Yes, New Mexico follows the OSM Bonding Handbook recommendations for the determination of all Indirect costs including mobilization/demobilization, engineering redesign, contingency costs and contractor profit and overhead. These are shown in summary format as part of El Segundo Mine’s bond cost estimate submittal. 3. Are the revegetation costs in the bond calculation consistent with the approved revegetation plan? Yes, the revegetation costs are based on the cost of obtaining and planting the seeds, shrubs and trees listed in the approved reclamation plan. In addition this operation has assumed, and included the cost of a 50% failure rate of revegetation in its reclamation cost estimate. 4. What type of financial assurance is provided for any postmining pollutional discharges, and how is the amount of that assurance calculated? No financial assurance is provided for postmining pollutional discharges as none exist nor or are expected. If discharges occur NM requires a permit revision to address the site specific problem. 5. How does the bond amount compare with that calculated using the OSM Bonding Handbook? The current bond amount includes all costs considered in the OSM Bonding Handbook methodology. In addition, the permittee has posted $4 million dollars above the full cost of reclamation including contingency costs, and has fully bonded the entire site for maximum disturbance (even though only half the operation has actually been disturbed). 6. Is the reclamation of bond forfeiture sites being done in conformance with the approved reclamation plan for the site? Are differences due to the inadequacy of the bond or available resources from the alternative bonding system? New Mexico has not had a bond forfeiture in over 25 years, long before the last bond oversight evaluation. There are no forfeiture of bonds to review.

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North Dakota
Review of State documents The North Dakota Public Service Commission (PSC) uses their guidance document, “Annual Update of Variable Costs Contained in Policy Memorandum No. 16 to Mine Operators - Reclamation Cost Estimating Guidelines”, most recently updated on July 20, 2009, to specify the costs to be included in each reclamation cost estimate submitted to the PSC for approval. Variable costs estimates are reviewed and updated, if necessary, in July of each year. The reclamation cost estimates in approved permits are reviewed by the PSC Reclamation Division at permit midterm and renewal, when significant mine plan or reclamation plans are proposed, or when significant changes are made to Policy Memo No. 16 to ensure the current bond amounts are adequate. If they are found to be inadequate, the permittees are required to make the changes to the bond amount. This guidance document also includes hourly costs for each piece of equipment that the PSC allows, including the factors affecting the equipment hourly costs and production, and labor rates. Other specified costs include structure removal, seed costs, long-term monitoring, fence replacement and public road reclamation. The PSC does not follow the OSM Bonding Handbook line items for Indirect Costs. Instead the PSC calculates profit and overhead in the equipment hourly cost, so it is not added on as an Indirect cost. The PSC uses an “administrative” cost category to account for the cost of preparing a pre-reclamation topographic map, a worst-case reclamation plan, a final topographic map, and the comparison between the pre- and final- reclamation topographic maps. Direct field supervision and survey costs are added on, as are any mobilization/demobilization costs with these amounts based on the Direct costs. In reviewing the state’s four bond calculations, OSM engineers determined the range of North Dakota’s add-on and indirect costs are comparable to OSM “Indirect” costs (as specified in the OSM Bonding Handbook) with these estimates in the range of 22-30%. Also during this evaluation, a copy of Policy Memorandum No. 15 was provided, which gives guidance on the procedure for the release of lands used for ash disposal. Consideration of this guidance document was relevant only to the reviewed Center Mine Permit BNCR-9401. The state of North Dakota uses state-accepted sources to update their reclamation costs annually. Policy Memorandum No. 16 provides guidance and the format for reclamation bond estimates to be submitted to the state. It also specifies equipment type and cost for each reclamation scenario. Each of the state’s bond calculation considers the information in the operations and reclamation plans which identifies the roads and ponds to be left, the requirements needed for any structure to be left as permanent features, and the bond reflects the costs to complete reclamation of the permitted area. The PSC includes administration, engineering and mobilization costs in lieu of what OSM considers “Indirect” costs. These costs include the costs for preparation of pre-reclamation topographic maps, plans and specifications for engineering redesign, final topographic maps, direct field supervision and mobilization/demobilization. Based on the bonds reviewed, the administrative costs alone range from 2.7 to 6 percent. No inflation 31

was added as costs were re-evaluated on a yearly basis. The revegetation costs are based on the cost of seedbed preparation, seed and plant distribution, and post mine land use identified in the approved reclamation plan, with costs set by the PSC. The allowed maximum volume of material moved by the various pieces of equipment are shown in the guidance documents are as bank cubic yards, which may actually incur additional hourly costs when converted to the swollen material volume to be moved. The use of bank cubic yards in this case may result in a more conservative reclamation cost being generated. No inflation factor is used as bonds are updated at the time of major permit revisions, permit renewal, and midterm, updating of Policy Memorandum No. 16, or as otherwise required by the PSC. PSC does not include a visibility factor when calculating the efficiency of equipment operation, something it may want to consider in the future given the use of multiple shifts in their bond calculations. The bonds reflect the worst-case reclamation scenario of each operation, which may actually be in a subsequent permit term and will incur significantly more earthmoving and other costs. No AMD is expected. The bond release procedures for all mines in North Dakota include retaining $200 per acre for all undisturbed acres at the time of Phase I release. This $200 is held through final release. For mines where there is more than one permit and where the bond applies to more than one permit, the PSC calculates the reclamation cost estimate for the worst-case scenario of all permits included in the consolidated bond area to determine the consolidated bond amount. In North Dakota, most “mines” are made up of multiple permits, and each permit is bonded independently or consolidated with other permits at a mine. The bond estimates for the four permits reviewed are in a format and dollar amount similar to when OSM did an independent estimate. PSC sets the value of all reclamation costs including the equipment hourly production values, operating costs, seed costs, and indirect-type costs. The costs are obtained from local suppliers and represent annual, state-wide North Dakota costs. The bond amounts reviewed were adequate to complete reclamation as approved in the operation and reclamation plans. On-Site Office Visits Beulah Mine, Permit No. KRSB-8603, Permit Term 2006-2011, Midterm This permit is for a dragline operation, and in 2010 will become the primary mine area for the Beulah Mine. The total permitted acreage is 2666.1 acres, the total life-of-permit disturbance is projected at 2,100 acres, and the acreage disturbed during this reporting period was 146 acres. Currently there are three active pits within the permit. This permit was issued in 1986 and has an expected life of mine production of 32 million tons, with the annual production of 2.9 million tons. The permittee has an estimated reclamation cost of $6,267,847 to cover the cost of all reclamation specified in the permit, of which $167,449 is designated as administrative costs, and an estimated $1,390,005 is specified as OSM-type Indirect costs. These Indirect costs include equipment profit and overhead, and labor overhead that were back-calculated from hourly costs, and then are added to the North Dakota administrative and supervisory costs. 32

All existing ponds (except for the two that will be converted to developed water resources), haulroads and associated ditches will be removed through the reclamation process. Approximately 4 feet of suitable plant growth material, including topsoil, will be replaced over the disturbed area, prior to vegetation of the area. NOTE: The costs and calculation methodology used for this evaluation was the North Dakota guidance document, Policy Memorandum No. 16, which establishes the acceptable costs and production rates for each piece of equipment allowed in a reclamation estimate. OSM noted, and brought to the state’s attention, that in this particular estimate by the permittee, every instance where a production rate (the amount of material a piece of equipment can move for a specific distance or under specific circumstance) was cited, it was never the exact amount indicated by either the state’s policy guidance or what could be verified in the Caterpillar Handbook (39th Edition). Nearly every production rate submitted by the permittee had been increased, thus reducing the time needed for each piece of equipment and thus effectively underestimating the reclamation cost estimate. As a result, OSM did an independent reclamation cost estimate (assuming the same types of equipment moving the same amount of material), and came up with a slightly (9%) higher cost to reclaim. Center Mine, Permit No. BNCR-9401, Permit Term 2005–2010, Phase I Release This is a scraper operation. This is an area of the Center Mine in which the coal was removed incidental to the excavation and construction of the ash disposal cells. The ash will come from the adjacent power plant. Up to 526,000 tons of coal will be removed through the end of the excavation process in 2013. The acreage of this permit is 323 acres. The area within this permit will be excavated to produce below-grade slurry ash disposal cells. The PSC required the pit disturbance areas have the post mine land use changed to industrial. Following the development of the ash disposal cell, the jurisdiction was transferred to the North Dakota Department of Health and the area was bond released as an industrial area. The surface facilities (roads, stockpiles, ponds, etc.) will remain permitted and bonded by the PSC. The approved post mining land use is industrial, allowing for the ash disposal cells. These cells have a waiver allowing backfilling to extend past the state’s 180-day contemporaneous reclamation requirement. Once coal removal has been completed from a pit area and the pit has been developed as an ash disposal cell as required by the Health Department, the disposal cell is bond released as an industrial area but remains under the jurisdiction of the Health Department. Reclamation of the disposal cells, haulroads, and associated features is scheduled to be completed by 2027. The permitted lands adjacent to the disposal cells have a diversion ditch and a number of topsoil and subsoil stockpiles for which a reclamation bond is held under North Dakota’s reclamation law. Currently, two of the three cells have been dug, lined (bottom and sides with clay soils), and bond has been released as an industrial area. Excavation of cell No. 3 was just beginning at the time of this review, with the removal of topsoil.

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The amount of bond held for this permit is $696,060, of which $37,647 is administrative cost, and $178,697 are estimated as the Indirect-type costs specified by OSM’s Bonding Handbook. Center Mine, Permit No. BNCR-9702, Midterm The bond amount for the Center Mine is established on a multi-permit basis. The bond calculations for Center Mine Permits BNCR-9702, BNCR-8106, BNCR-8202, and BNCR-8602 are combined into a single bond, with Permits 37 and BNCR-9401 being bonded separately. However, of total permitted acreage for the Center Mine (9,245.3 acres), 8938.5 acres is covered by the consolidated bond area that includes Permit BNCR-9702. Permit BNCR-9702 is permitted itself for 6,342 acres. During the last reporting period 222 acres were disturbed within this permit. The life-of- mine disturbance within this permit is projected at 5,600 acres. In determining the bond amount, the PSC followed its published guidelines by determining the worstcase reclamation scenario within the permit area, applying the approved reclamation plan and the state established equipment and labor costs. The state also set the productivity of the equipment based on field conditions and reclamation requirements. Mining in Permit BNCR-9702 is accomplished by dragline mining methods. The permit term is for 5 years but the bond may be recalculated annually, based on changes to Policy Memorandum No. 16, therefore there was no inflation applied to the bond amount during the last review of the bond amount. Production during the last reporting period was 4,400,000 tons and production for the life-of-mine is expected to be 110,000,000 tons. Indirect costs are handled as both an add-on and part of the Direct equipment and labor costs. The PSC calculates an add-on cost based on the total Direct costs for administrative costs ($454,264) and miscellaneous costs ($236,812). PSC also includes in the Direct costs, a 15 percent cost for equipment overhead and profit ($3,039,630) and a labor fringe cost ($1,948,063) for a total Indirect cost of $5,678,769, based on Direct costs of $18,693,531. The total reclamation cost estimate is $23,681,224. Falkirk Mine, Permit No. NAFK-9601, Phase I Release There are multiple permits at the Falkirk Mine. This evaluation only applies to Permit NAFK-9601. The mining permit has expired, and mining and most of the reclamation was completed within the permit area prior to this review. There have been several partial bond releases for the completion of backfilling and grading and soil re-spread in this permit area. The state’s bond calculation and bond amount applies only to Permit NAFK-9601. Prior to Bond Release No. 1 (Phase I & II) in Permit area NAFK-9601, the bond amount was recalculated using the current guidelines. To determine the amount of bond to be released from that revised bond amount, PSC determined the number of undisturbed acres and assigned a retention cost of $200.00 per undisturbed acre. That retention cost was subtracted from the revised bond amount, and then PSC divided the remainder of that revised bond amount by the number of disturbed acres to obtain the average reclamation cost per disturbed acre. This average reclamation cost per disturbed acre was used to determine the total bond amount needed to complete all remaining phases of reclamation. This amount 34

is then multiplied by 60 percent (40% for Phase I + 20% for Phase II) to determine the maximum allowable release for Phase I and II release (North Dakota has 4 phases of bond release). The state then compared the maximum allowable release amount to the amount requested by the permittee; PSC then released the lesser of the two amounts. Since all of the final pit must be backfilled and graded for Phase I release, the retained bond amount (money retained for undisturbed acres + remaining bond for disturbed acres) will always be sufficient to complete reclamation. There have been three partial bond releases approved (North Dakota Phase I and II bond Release for the completion of backfilling and grading and soil re-spread) for this permit. Prior to any partial bond releases being approved for this permit area, the amount of bond being held was $6,062,479. This oversight review evaluated the calculation of only the Phase I release for this area (Tracts 1 & 2, total of 430 acres), in the amount of $628,287. The current amount of bond being held after subsequent releases were approved is $ 3,495,437. Oversight Work Plan Questions Background information: 1. Is there a clear understanding by the regulatory authority and OSM as to the methodology that the state is using to calculate required bond amounts? Yes, North Dakota uses state-approved sources to update their reclamation costs annually. Policy Memorandum No. 16 provides guidance and the accepted format for reclamation bond estimates submitted to the state for review. It also specifies the type of equipment that is acceptable for consideration in each reclamation estimate, along with the hourly cost for each. 2. Are there any outstanding required program amendments or 30 CFR Part 732 notifications related to bonding? No, there are no outstanding required program amendments or 30 CFR Part 732 notifications related to bonding. 3. Has the Field Office or State received any citizen complaints related to bond adequacy in the past 3 years? If so, what was the ultimate outcome of those complaints? No. 4. Has the State revised its bond calculation methodology since the last comprehensive OSM review? No, North Dakota has not changed its reclamation bond costs estimation methodology since the last comprehensive OSM review.

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Bond calculation: 1. Has the bond calculation considered all features and structures in the approved plan, including whether roads and impoundments will be permanent? Yes, the operations or reclamation plans spell out what roads and ponds are to be left, what requirements are needed to any structures to be left and the bond reflects those changes along with complete reclamation of the permitted area. 2. Does the calculation include the costs of mobilization, demobilization, engineering redesign, and contractor profit and overhead? The state of North Dakota includes “Administration, Engineering and Mobilization Costs”, in lieu of what OSM considers “Indirect” costs. These costs include the cost for preparation of a prereclamation topographic map, preparation of plans and specifications for a new reclamation plan, preparation of a final topographic map, the cost to compare the final topographic map with the pre-reclamation topographic map, the cost direct field supervision, and a mobilization/demobilization cost. Based on the bonds we reviewed, the range of the administrative costs ranges from 2.7-6% of the overall bond. No inflation is added as bonds are re-evaluated on a yearly basis. 3. Are the revegetation costs in the bond calculation consistent with the approved revegetation plan? Yes, the revegetation costs are based on the cost of seedbed preparation, distribution of seeds and plants identified in the approved Reclamation plan, with costs as required by the state. 4. What type of financial assurance is provided for any postmining pollutional discharges, and how is the amount of that assurance calculated? No financial assurance is provided for postmining pollutional discharges as none exist nor are expected. 5. How does the bond amount compare with that calculated using the OSM Bonding Handbook? The reclamation cost estimates and bond amount for the four permits reviewed are in a similar format and dollar amount to that when OSM did independent estimates. 6. Is the reclamation of bond forfeiture sites being done in conformance with the approved reclamation plan for the site? Are differences due to the inadequacy of the bond or available resources from the alternative bonding system? North Dakota has not had a bond forfeiture since 1994 for a very small mine, thus there are no forfeitures to review.

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Utah
Review of State Documents The state of Utah’s Division of Oil, Mining and Gas (DOGM), has developed Technical Directives “Calculation Guidelines for Determining Reclamation Bond Amounts (Tech-007)” to provide guidance in preparing a bond calculation and “Requirements for Phased Bond Release (Tech 006)” to determine how much of the bond should be released to ensure all approved reclamation can be completed with the remaining posted bond amount. As with OSM’s Bonding Handbook, each bond is based upon, but not limited to the amount proposed by the permittee. The reclamation bond amounts Directive (guidance document) suggests the bond amount be evaluated at the time of renewal, mid-term, and if costs or mining procedures dramatically change during the permit term. Bond amounts are based on the worst-case scenario as detailed in the operations and reclamation plans, but the DOGM is authorized to routinely evaluate the bond adequacy and require adjustments as needed. The bond amounts of the reviewed permits were adequate to complete the approved reclamation. The permits reviewed were the Coal Hollow Mine, Lila Canyon/Horse Canyon Mines, and Star Point Mines 1 & 2. On-Site Office Visit The reclamation cost estimate guidance document refers to the OSM’s Bonding Handbook, Caterpillar Performance Handbook, Means Cost Data publications and PRIMEDIA’s Rental Rate Blue Book for equipment costs, revegetation and wage rate costs. In its estimates, Utah has utilized the total hourly cost including profit and overhead so it is not added later as an Indirect cost. The guidance document includes the efficiencies and adjustments for equipment and personnel. Finally, because the regional costs in Utah vary less than 2% from the national average, no regional adjustments are included in the reclamation estimates. The Indirect costs are a percentage of the calculated Direct costs. The directive specifies that startup mobilization/demobilization, contingency costs, engineering redesign fee, main office expense, and project management fee costs be included in the estimate. Finally, an escalation factor through the end of the permit term is added to the combined total of the Direct and Indirect costs. The directive for phased-bond release addresses the procedures to determine the amount of bond to be retained to complete all remaining phases of reclamation, as well as the applicant’s requirements prior to submitting a release application, the role of the state inspection staff, and public participation. The Division determines the amount of the actual bond release, based on what amount must be retained. Volumetrics and acreages used by the state or permittee as the basis of the states bond calculations were assumed to be correct and for the purpose of this oversight were not verified. Finally, DOGM has a new engineer who has begun to learn the bonding process, having started with small revisions to existing bonds. After spending time with the OSM engineers in the Salt Lake City 37

office, he has a better grasp of what is to be considered to complete a mine-wide bond cost calculation which will determine the bond amount. Plateau Mining Company, Star Point Mines Nos. 1 & 2, Permit No. C/07/006, Phase I & II Releases This is a review of a Phase I and II bond release of an underground room and pillar, then longwall mine which had a maximum annual production of 3 million tons and a 23 year life-of-mine raw tonnage production of 16 million tons. In the 1987 renewal, the permitted area was 8,830 acres and the life-ofmine disturbance was projected at 7,045 acres. Mining in the area began in 1917, but this operation as it most recently existed, operated from 1967 through 2000 when production ceased, and reclamation and sealing of the portals began. Phase I & II releases occurred in years 2004 and 2009, respectively. In 1999, the reclamation bond was set at $10.581 million dollars. In 2003, the bond amount was reduced to $7.796 million to cover the remaining 95.3 acres following the permit acreage reduction by 245.1 acres and release of 73.9 acres of undisturbed land. This also included the jurisdictional transfer of the 171.2-acre refuse pile and topsoil-borrow area to Sunnyside Cogeneration Associates. In 2004, a Phase I release was granted reducing the bond held to $3,118,400. In 2009, a Phase II release was granted further reducing the bond amount held to $734,000 to cover the final phase of reclamation on the remaining 95.3 acres. For each of the phased releases, letters and technical reviews identified the amount of held bond which was be adjusted, the amount of bond to be released, and the acreage the bond amount covered. The cost estimate summary sheets for each release shows the projected costs for the Direct costs, including demolition, backfilling/grading (with topsoiling),and revegetation, and all the Indirect costs noted above, as well as the amount of escalation though the end of the permit term. The engineering section of this permit (Section 500) identifies the roads, structures, ponds, and drill holes to be removed, and maps provide the distance between each identified structure. However, no records reviewed in the Public Information Center, or in the state’s on-line record database provided neither the permittee’s reclamation cost estimate nor the state’s detailed bond calculation used to substantiate the amount of the bond to be held or the amount to be released. None of the supporting documentation showing volumes, distances or equipment used by the permittee was found. Although the supporting volumes, areas and distances were not available in the form of detailed cost estimates or calculations, probably due to the age of the permit and the subsequent digitization process of the records, the formatting of what is available indicates that Utah has established a determination practice for release that is consistent with that used by OSM. It provides a format which considers all reclamation costs, requires Indirect costs (in this case, in the amounts of 26% and 35% for the two phase releases), conservatively factors in profit and overhead, and requires an escalation factor of costs during the life of the permit term that similar to OSM’s inflation factor. Alton Coal Development, LLC (ACD), Coal Hollow Mine, Permit No. 025-0005, New Permit This mine is a surface mine for which the permit issuance is being held until a bond is posted. Coal will be mined and overburden moved using trucks and hydraulic excavators and/or front-end loaders. ACD is projecting annual production of 2 million tons, with the current total life-of-mine production of 5 million 38

tons. The current permit is being issued to the permittee with their anticipation of obtaining additional Federal coal and using this permit area to access to that coal. The permit is for 635.64 acres, with a total of 433 acres to be disturbed. Based on the operation and reclamation plans, and the applicant’s submittal, the state set the bond amount at $6,045,000. The Indirect costs were calculated in two ways. Part of the profit and overhead was included in the labor costs, but the mobilization/demobilization, project management/engineering, and the rest of the contractor’s profit and overhead were calculated as a percentage of the Direct costs. The Direct costs totaled $5,345,000 and the Indirect costs totaled $1,769,000. Utah American Energy, Inc. (UAE), Lila Canyon/ Horse Canyon Mine, Permit No. 0007-13B, Permit term 2008 – 2013, New Permit The permit is for the surface disturbance for an underground slope mine and the surface area overlaying the shadow area of the projected underground mine workings. A slope will be driven from the portal entrance up to the coal seam to be mined. The permit contains 5,992.07 acres, 42.6 are permitted for disturbance, of which 25.3 are currently disturbed. The disturbance will include all surface facilities for the underground mine. Production from the underground mine will be by continuous miner and longwall mining methods. The applicant is projecting annual production between 100,000 and 4.5 million tons, with a maximum annual production of 4.5 million tons. The total bond amount is set at $1,694,000. The Direct costs are $1,379,042 and the Indirect costs are $314,957. Oversight Work Plan Questions Background information: 1. Is there a clear understanding by the regulatory authority and OSM as to the methodology that the state is using to calculate required bond amounts? Yes. Utah has the Technical Directive which provides guidance in what costs are considered in calculating a bond amount. However, after spending time with OSM engineers during the bonding adequacy oversight reviews, the Utah staff responsible for determining the adequacy of the reclamation cost estimates and bond amounts now have a better understanding of what must be considered in an estimate to guarantee the state is protected should forfeiture ever occur at a permitted coal mine. 2. Are there any outstanding required program amendments or 30 CFR Part 732 notifications related to bonding? No, there are no outstanding required program amendments or 30 CFR Part 732 notifications related to bonding.

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3. Has the Field Office or State received any citizen complaints related to bond adequacy in the past 3 years? If so, what was the ultimate outcome of those complaints? No. 4. Has the State revised its bond calculation methodology since the last comprehensive OSM review? No, the most recent engineer responsible for calculating bonds did so for nearly 20 years. That process has not changed since the last comprehensive OSM review. Bond calculation: 1. Has the bond calculation considered all features and structures in the approved plan, including whether roads and impoundments will be permanent? Yes, the operations and reclamation plan, then the available detailed bond estimates were thoroughly done and did consider all costs that will be incurred at the time of reclamation. 2. Does the calculation include the costs of mobilization, demobilization, engineering redesign, and contractor profit and overhead? Yes, Utah includes all of these costs in their guidelines, along with the overall escalation factor. These combined have been in the range of 25-35%, comparable or slightly higher than OSM’s suggested Indirect costs. 3. Are the revegetation costs in the bond calculation consistent with the approved revegetation plan? Yes, the revegetation costs on a per acre basis were determined from the Means Cost Data publication. In addition, both the Lila Canyon and Coal Hollow operations included an additional 25% or 50% failure rate for seeding and shrub replacement. 4. What type of financial assurance is provided for any postmining pollutional discharges, and how is the amount of that assurance calculated? Utah has required that the permittee calculate the cost of remediation of the affected stream. 5. How does the bond amount compare with that calculated using the OSM Bonding Handbook? The reclamation cost estimates and bond amounts on the active mine properties include all costs considered in the OSM Bonding Handbook, both in the Direct cost and Indirect cost categories. If calculated independently per OSM’s Bonding Handbook methods, the dollar amounts would be comparable.

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6. Is the reclamation of bond forfeiture sites being done in conformance with the approved reclamation plan for the site? Are differences due to the inadequacy of the bond or available resources from the alternative bonding system? Utah does not have any reclamation bonds currently in forfeiture.

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Wyoming
Review of State Documents The state of Wyoming uses their Guideline No. 12, “Standardized Reclamation Performance Bond Format and Cost Calculation Methods”, as the basis of determining their bond amounts on a state-wide basis. Wyoming’s Land Quality Division (LQD) reviews all permittee’s reclamation cost estimates in their Annual Report submittal, a document which summarized the disturbance during the past year but didn’t include any projections beyond that reporting period. The guideline estimating document, which is updated yearly (or more frequently if costs significantly change), provides costs for typical equipment found and used in typical reclamation practices of Wyoming coal mines. This document provides a minimum consistency for state-wide reclamation costs, and includes such costs as the hourly cost for specific dozers pushing material at various grades and the purchase cost if a shovel is used for reclamation, but it doesn’t require a standardized format for the permittee’s submitted reclamation cost estimate. The cost of backfilling and rough grading of active pit areas is identified in Wyoming as the “area bond”, and the cost for the reclamation of everything other than these areas, including facilities, roads, and ponds, is identified as the “incremental bond”. OSM reviewed the equipment productivity and the equipment, labor and demolition costs. These costs were found to be essentially those identified in the OSM’s suggested reference material used to determine costs. In addition, OSM reviewed entire operation and reclamation plans for each permit OSM did not verify the volumetrics or the acreages which the mine permittee generated from modeling software, but did assume these were correct. For areas that are fully reclaimed but have not yet undergone any phase release, these areas remain fully bonded and include the full amount to complete earthmoving, topsoiling, scarification, and revegetation. Revisions are addressed in the Annual Report as a proposed activity during the reporting period, so mine development and planning is strongly encouraged. If an emergency revision comes in it is evaluated to determine if it will increase the bond. A bond is increased when reviews deem it to be necessary. Review of the bond calculations for the reviewed permits indicates they are adequate to complete the approved reclamation. On-Site Office Visits Thunder Basin Coal Company, Black Thunder Mine, Permit Number 233-T7, Annual Report (12/08-1209), Permit Term November 2005-2010, Annual Review This is a dragline operation, which also uses trucks and shovels to move coal. The total permitted acreage is 29,212 acres, the total life-of-mine disturbance is projected at 26,490 acres, and the total disturbed acreage through January 2009 was 13,874 acres. The permittee has an estimated reclamation cost and post bond amount of $189,004,000 to cover the cost of all reclamation specified within the permit area, and includes nine different Indirect costs totaling $21,278,000. The total of the Direct costs is $167,726,000.

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Topsoil is stockpiled or direct-hauled, and then placed. All surfaces are scarified before topsoil is placed. There are to be no permanent structures. Non-coal waste and coal combustion byproducts (CCB’s) are buried in pits, but must meet specific requirements for burial and then be covered with the specific amount of cover material. The mine-owned rail spur will be removed. No AMD is expected. For areas that are revegetated, Black Thunder Mine requires a 10% fee be added to the total of the revegetation cost to allow for maintenance until release. For areas that are fully reclaimed but have not yet been released from bond, these areas retain full bond, including all costs from earthmoving through the final stage of reseeding. Production was 67.4 million tons in 2008, and has a life of mineable reserve of 1.6 billion tons. Rio Tinto Energy America, Wyodak Mine, Permit Number 232-T6, Annual Report (11/07- 10/08), Permit Term April 2006-2011, 2008 Annual Review This is a truck shovel operation, operating as a thin overburden coal mine, with production at 5,821,896 tons during this reporting period and 132,605,215 tons over the life of the operation. The total permitted acreage is 5,980.73 acres, the total life-of-mine disturbance is projected at 4,243.52 acres, and the total disturbed and projected disturbed acreage through November 2008 was 2,341 acres. The permittee has an estimated reclamation cost and posted bond amount of $38.9 million to cover the cost of all reclamation specified within the permit area, and includes nine different indirect costs totaling of $6,413,519. The Direct costs total $32,486,481. There are to be no permanent structures. CCB’s are buried in pits, but must meet specific requirements for burial and the amount of cover. The mine-owned spur will be removed. No AMD is expected. For areas that are fully reclaimed but have not yet been released from bond, these areas are fully bonded and include all costs including earthmoving through the final stage of reseeding. Topsoil is stockpiled or direct hauled and placed. All surfaces are scarified before topsoil is placed. Final relocation of the Highway 51 is complete, with an industrial post mining land use in the temporary road location as an auto speedway. Arch of Wyoming LLC, Carbon Basin Mine, Permit Number 730-T1, Annual Report (11/07-11/08, Permit Term November 2005-2010 This is a small front-end loader operation, where surface mining has stripped away the outcrop coal, and then a highwall mine took the remainder of coal along the western perimeter of the mine to an overburden depth under a bluff of 950 feet. A large stockpile of coal currently exists in the pit area of the original surface mine opening. The next stage of mining, which is beyond this Annual Report, will be to put slopes and portals in on the southern and eastern outcrops of the bluff and begin longwall mining. To date however, the only disturbance is 168.9 acres along on the west end of the permit adjacent to the county road. Bond covers the highwall disturbance and the proposed haulroad which will eventually run east to where the southern portals will be located.

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The reclamation cost estimate does include the removal cost of ponds, overburden and topsoil stockpiles, the downsizing of the access road back to the pre-mine county road standard, or backfilling the highwall area. It was noted that there is a small stockpile of shale that has been oxidizing, but plans are to encapsulate it with suitable fill material and bury it in the backfill above the potentiometric surface. A stockpile of coal must be removed or buried before reclamation can be completed. Topsoil is stockpiled. All surfaces are to be scarified before topsoil is placed. There are to be no permanent structures. There is no rail to be removed. No AMD is expected. For the 1.7 acres that are fully reclaimed but not yet released from bond, full bond is held and includes the full costs of earthmoving through the final stage of reseeding. The coal production was 158,811 tons during this reporting period, with 78.4 million tons over the life of the operation. The total permitted acreage is 13,309 acres, the total life-of-mine disturbance is projected at 5,440 acres, and the total disturbed acreage through November 2008 was 1,874 acres. The permittee has an estimated reclamation cost and posted bond amount of $6.33 million to cover the cost of all reclamation within the approved bonded area, and includes nine different Indirect costs totaling of $1.784 million dollars. The direct costs are $4,546,000. This bond will be held until all identified, projected disturbance is reclaimed. Eagle Butte Mine, Permit Number428-T5, Annual Report (12/07 – 12/08), Permit Term October 20052010. This is a truck shovel operation operating as a thin overburden coal mine, with production at 19.01 million tons during 2008 and is estimated at 1.25 billion tons over the life of the operation. The total permitted acreage is 10,110.7 acres, the total life-of-mine disturbance is projected at 8,715.7 acres, and the total disturbed acreage through December 2008 was 4,073 acres. The permittee has an estimated reclamation cost and posted bond amount of $115,702,000 million to cover the cost of all reclamation specified within the permit area, and includes nine different Indirect costs totaling $16,400,000. The Direct costs for the Eagle Butte mine are $99,302,000. There will be permanent structures including ponds and wells all of which are identified on the post mining topographic map. Topsoil is stockpiled, borrowed or direct hauled and placed. All surfaces are scarified before topsoil is placed. No AMD is expected. Grass Creek Coal Company, Spring Gulch Coal Mine, Permit Number 211-T5, Annual Report (8/07-8/08), Permit Term April 2006-2011 This is a front-end loader, cross-ridge mining operation. Annual production was 50 tons during this reporting period, but overall estimated reserves are 10.4 million tons over the projected life of the entire operation, assuming Spring Gulch Coal Mine permits additional acreage. The total permitted acreage is 279 acres, though the total life-of-mine disturbance including proposed portal access to longwall panels is projected at 4,243.52 acres (additional acreage must be permitted), and the total disturbed and projected disturbed acreage through August 2008 was 81 acres. The permittee has an estimated reclamation cost and posted bond amount of $439,900 to cover the cost of all remaining 44

reclamation specified within the permit area, and includes nine different Indirect costs totaling of $83,131. The approved post-mine, permanent structures include the ponds, the shop, the power line, the scale, and the access road. No AMD is expected. Soil waste and used oil are removed from the mine property. With the exception of the immediate mining area, all areas are fully reclaimed but none have yet been released from bond, remaining fully bonded and including all costs from earthmoving through the final stage of reseeding. Topsoil is stockpiled. All surfaces are to be scarified before topsoil is placed. This bond was last evaluated in November 2000, and is due for a full evaluation to determine its adequacy. Oversight Work Plan Questions Background information: 1. Is there a clear understanding by the regulatory authority and OSM as to the methodology that the state is using to calculate required bond amounts? Yes, Wyoming is following its “Guideline No. 12, Standardized Reclamation Performance Bond Format and Cost Bond Calculation Methods” which provides comprehensive unit costs used determine direct costs. In addition, the WY guidance document includes reference to use of same Indirect or contingency costs suggested by the OSM Bond Calculation Handbook. 2. Are there any outstanding required program amendments or 30 CFR Part 732 notifications related to bonding? No, there are no outstanding required program amendments or 30 CFR Part 732 notifications related to bonding. 3. Has the Field Office or State received any citizen complaints related to bond adequacy in the past 3 years? If so, what was the ultimate outcome of those complaints? No. 4. Has the State revised its bond calculation methodology since the last comprehensive OSM review? No, Wyoming has not changed its bond cost guidance document, with exception of yearly cost updates, since the last comprehensive OSM review. The guidance document provides the typical types of equipment or demolition costs which will be used to complete reclamation, and are included in each reclamation estimate.

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Bond calculation: 1. Has the bond calculation considered all features and structures in the approved plan, including whether roads and impoundments will be permanent? Yes, Wyoming reclamation estimates consider the cost of reclamation of all features identified in the operations and reclamation plans. Because no roads or ponds are to be left, the scarification of all disturbed acres prior to placing topsoil includes the removal of all non-permanent structures. 2. Does the calculation include the costs of mobilization, demobilization, engineering redesign, and contractor profit and overhead? Yes, and 6 different contingency-type costs are included in the total of the mine’s reclamation estimate. 3. Are the revegetation costs in the bond calculation consistent with the approved revegetation plan? Yes, within their guidance document, the state of Wyoming requires very detailed information and supporting documentation for all phases of reclamation. Each step of the reseeding process, including the preparation, the method of seeding, the cost of seed, fertilizer, and fencing must be itemized for a total cost per acre. This is much more detailed than what OSM currently suggests, which is simply a cost per acre amount. 4. What type of financial assurance is provided for any postmining pollutional discharges, and how is the amount of that assurance calculated? No financial assurance is provided for postmining pollutional discharges as none exist nor or expected. 5. How does the bond amount compare with that calculated using the OSM Bonding Handbook? The current bond amount includes all costs that would be calculated using the OSM Bonding Handbook worksheet despite the formatting difference between the two guidance documents. Because the bond is evaluated yearly, no inflation cost is included. Assuming all reclamation is identified through the reclamation plan, the reclamation estimate reflects what must be done in this 1-year snapshot for reclamation. 6. Is the reclamation of bond forfeiture sites being done in conformance with the approved reclamation plan for the site? Are differences due to the inadequacy of the bond or available resources from the alternative bonding system? Wyoming has had 3 bond forfeitures, but the most recent of those was in 2000. This was not evaluated during this review.

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