Interim Guidance for Implementation of The Energy Policy Act of 2005 [P.L.109-58] for Federal Coal Lease, Deferred Bonus Bonds

UNITED STATES DEPARTMENT OF THE INTERIOR

BUREAU OF LAND MANAGEMENT

WASHINGTON, D.C.  20240

November 25, 2005

In Reply Refer To:

3425, 3432, 3474 (320) P

EMS TRANSMISSION 11/29/2005

Instruction Memorandum No. 2006-045

Expires:  09/30/2007

To:                              State Directors

From:                         Assistant Director, Minerals, Realty, and Resource Protection

Subject:                     Interim Guidance for Implementation of The Energy Policy Act of 2005 [P.L.109-58] for Federal Coal Lease, Deferred Bonus Bonds

PROGRAM AREA:  Coal Management

PURPOSE:  Provide interim guidance for the implementation of Section 436 of the Energy Policy Act of 2005 [Pub.L. 109-58] which pertains to surety bonds and other financial assurances  that cover the unpaid balance of the deferred bonus bid for a coal lease or coal lease modification. 

POLICY:  Until final regulations are completed to implement Pub.L. 109-58, BLM will administer a bonding policy for the unpaid balance of deferred coal lease bonus that is consistent with current regulations and Pub.L. 109-58.  Unless specifically noted in this memorandum, the regulations will be implemented as currently written.  The interim policy is as follows:

• Applicability: This policy applies to bonds and other financial assurances for deferred bonus payments payable for leases existing on August 8, 2005, that are associated with an existing mine and for new leases or lease modifications issued after August 8, 2005, that are prospectively affiliated with an existing mine.

• Effect of existing policy: The policy established in WO-IM-2004-217, in which a lease bond must be sufficient, in addition to other bond requirements of the regulations, to cover one annual deferred bonus payment, continues in effect unless the bond requirement is waived in accordance with the policy established in this memorandum.

• Policy for existing leases:  For leases existing on August 8, 2005, that are associated with an existing mine, the bond requirement for deferred bonus bid installment payments may be waived upon application by the lessee and a determination by BLM, in consultation with the Minerals Management Service (MMS), that the lessee has a History of Timely Payment of noncontested royalties, advance royalties, and bonus bid installment payments (HTP).

• Policy for new leases:  For leases and lease modifications issued after August 8, 2005, that are prospectively affiliated with an existing mine, BLM will not require a lessee to provide a surety bond or other financial assurance to guarantee payment of deferred bonus bid installment payments if BLM, in consultation with MMS, determines that the lessee or successor in interest has an HTP.  If a new lease is not prospectively affiliated with an existing mine, BLM, in consultation with MMS, will determine the leases on which to base the HTP.

• Application and processing procedures:  

o The lessee or successful high bidder must apply for an HTP determination in writing and provide BLM two copies of the application.  

 The lessee of an existing lease may apply for an HTP at any time.  

 A successful bidder for a new lease must apply after BLM accepts its bonus bid.  An applicant for a lease modification must apply after it has accepted BLM’s offer of a lease modification.

o All leases within a mine that have a portion of their bonus payments deferred can be aggregated into one application for an HTP determination for the mine.

o BLM will provide MMS one copy of the application and request in writing that MMS review the applicant’s payment history.  

o BLM will ask MMS to provide an assessment of the lessee’s HTP and supporting documentation within 30 days of BLM’s request.

o Within 30 days after receiving an MMS assessment that questions whether  the applicant has an HTP, BLM will attempt to facilitate resolution between the applicant and MMS of such questions.  

o Based upon the findings from MMS and resolution of any conflicts between MMS and the applicant, BLM will decide if a bond for the deferred bonus bid installment payments is needed.

• The application for an HTP determination must include.

o The name, address, and phone number of the applicant and the applicant’s primary contact person. 

o Identification of the lease or leases for which the applicant requests not to provide a surety bond or other financial guarantee for the deferred bonus bid installment payments.

o Identification of the surety bonds or other financial guarantee instruments, if applicable, that the lessee desires to discontinue.

o Identification of all federal coal leases, by serial number and lessee name of record, which are associated with the same mining operation as the lease or leases with the deferred bonus bid installments payments.

o The mine name and SMCRA permit number of the mine associated with the subject lease or leases.

o Any other information as requested by BLM or MMS. 

o Any confidential data in the application must be marked pursuant to 43 C.F.R. 3481.3.  

• HTP standards: 

o MMS will evaluate the applicant’s payment history for the five years immediately preceding an HTP application using the following standards.

 For existing leases, the lessee’s HTP will include applicable payments received by MMS for all federal leases that are associated with the same mine as the lease or leases that are the subject of the HTP application.  Associated leases are within the Surface Coal Mining and Reclamation Act (SMCRA) permit boundary for the mine nearest to the lease that is the subject of the HTP application and which are under the control of the applicant for an HTP determination.  

 For new leases that are prospectively affiliated to an existing mining operation that is under the control of the successful high bidder, the successful bidder’s HTP will include all federal coal leases that are within the SMCRA permit boundary for the mine nearest to the new lease that is the subject of the HTP application and which are under the control of the applicant for an HTP determination.

 If the successful bidder for a new lease is not affiliated with an adjoining mine, the BLM State Office will contact the Washington Office (WO-320) for instruction concerning a determination as to which lease or leases to base the HTP.  BLM, in consultation with MMS, will determine the lease or leases on which to base the HTP.

o Timely payment will be determined based on the following criteria:

 All applicable payments within the prior five calendar years must have been paid on time.  Partial payments or nonpayment will be considered as not having been paid on time.  

 Royalty payments received by MMS no later than the date specified in Part II, Section 2(a) of the lease document (30 C.F.R. 218.200) will be considered to have been paid on time.  

 Advance Royalty payments received within 35 days of receipt of the MMS Order to Pay date will be considered to have been paid on time.

 Deferred bonus payments received by MMS on or before the annual anniversary date of the lease or lease modification will be considered to have been paid on time.

 If the lessee or successful bidder has less than five years of payment history, BLM, in consultation with MMS, may consider the payment history of a lessee’s corporate owner or affiliates under common control with the lessee or successful bidder.

 A noncontested royalty payment, for the purposes of determining an HTP, is any production royalty payment that has not been contested by the MMS or the applicant as of the date of application.

o A BLM determination that a lessee or successful bidder has an HTP is not equivalent to an MMS determination that a lease account is in good standing.  

• Requirement for issuing new leases: The lease or lease modification may only be issued with either a BLM determination that a financial assurance is not required under Section 436 of Pub.L. 109-58 or by the lessee including one annual deferred bonus payment in the lease bond.  Following the issuance of a lease or a lease modification based upon a lease bond that includes one annual deferred bonus payment, if BLM determines that the lessee has an HTP, BLM will reduce the lease bond to eliminate the portion of the lease bond corresponding to deferred bonus payment. 

• Duration:  An HTP determination made under this policy will be effective for all leases covered by the application until the bonus is paid in full in accordance with the terms and conditions of the leases or unless the implementing regulations make the HTP invalid, whichever occurs first.  

• Failure to pay deferred bonus bid installment payment:  Within 30 days after the annual anniversary of the lease issuance date of coal leases which have a bonus bid that has not yet been paid in full, BLM must verify that the annual deferred bonus bid installment payment  has been timely received by MMS.   If such payment was not timely received by MMS, the BLM will immediately notify the Washington Office (WO-320) to coordinate taking further action, which may include termination of the lease and forfeiture of all bonus bid payments previously paid.

• Impact on future regulations: This interim policy does not reflect how the final implementing regulations may be constructed.

ACTIONS REQUIRED:  Notify all federal coal lessees of this policy.  Until final regulations are completed, implement interim guidance for existing and new leases.

TIMEFRAME:  Immediate.

BUDGET IMPACT:  Minimal

BACKGROUND:  BLM is required to receive fair market value for all acreage that is leased for coal development.  Fair market value includes a bonus bid or value that is a cash payment which is over and above the required annual rental payments and production royalties.  For coal leases, payment of the bonus value may be deferred (30 U.S.C. 201).  By regulation (43 C.F.R. 3422.4(c)), the bonus is paid in 5 equal annual installments, with the first payment being submitted with the bid.  One annual payment of the bonus must be included in the lease bond (WO-IM-2004-217) until the bonus is paid in full.

Congress passed the Energy Policy Act of 2005 (the Act) [Pub.L.109-58] on August 8, 2005.  Section 436 of the Act adds new surety bond requirements for the deferred bonus bid.  The Act provides that the Secretary shall not require a surety bond for the deferred bonus bid installment payments for any coal lease issued after August 8, 2005 to a lessee with a history of timely payment of noncontested production royalties, advance royalties, and bonus bid installment payments.  The Secretary may waive the requirement that the lessee provide a surety bond for deferred bonus bid installment payments for leases existing on August 8, 2005 upon a determination that an HTP exists.  If a lessee fails to pay its deferred bonus bid installment payment with 10 days after the Secretary provides written notice to the lessee that a deferred bonus bid installment payment is past due, the coal lease will terminate and the lessee will forfeit any deferred bonus bid installment payments it has already made.

The interim guidance contained in this memorandum is implemented under the authorities provided by Section 436 of the Act.     

MANUAL/HANDBOOK SECTIONS AFFECTED:  This policy will require revision on Manual 3432, Lease Modifications (June 1, 1990, Release 3-255) and Manual 3474, Bonds (February 18, 1988, Release 3-194).

COORDINATION:  This policy was developed with the assistance of the BLM State Offices, the Minerals Management Service, and the Department of the Interior Solicitors Office.

CONTACT PERSON:  Solid Mineral Division (WO-320), Ted Murphy 202-452-0351, or William Radden-Lesage 202-452-0360.

MMS Contact: Robert Davidoff, Supervisor, Solid Minerals and Geothermal Compliance and Asset Management, Minerals Management Service 303-231-3306.

Signed by:                                                          Authenticated by:

Thomas P. Lonnie                                              Robert M. Williams

Assistant Director                                              Policy and Records Group,WO-560

Minerals, Realty and Resource Protection