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Snell&Wilmer L.L.P. Mr. Mike Long May 4, 2001 Page 5 coverage in accordance with the regulations. This is consistent with the State's view that the surety continues to havejoint and several liability under the policy. Even if Frontier were incapacitated, Powderhom would not be in violation of any applicable Colorado regulation because it has ceased all mining operations. Failure to replace a surety deemed to be incapacitated, in and of itself, does not constitute a violation of any Colorado law or regulation. Failure to replace a bond issued by an incapacitated surety coupled with the continuance of mining operations does constitute a violation. The applicable regulation states that, "[u]pon the incapacity of a surety ..., the permittee shall be deemed to be without bond coverage in violation of 3.02.1(2)." 2 C.C.R. 407-2, Rule 3.02.4(2)(b)(v)(C). That provision states: An operator shall not disturb surface acreage or extend any underground shafts, tunnels or operations prior to approval of the permit and receipt of approval from the Division of a performance bond covering surface acreage to be affected. The act that creates the violation is the continuance of mining operations after the surety is deemed to be incapacitated. Powderhom is not conducting coal mining operations or any of the activities otherwise enumerated by the regulation. Instead, Powderhom is reclaiming the mines. All mining disturbance occurred during the period in which Frontier maintained its federal certification. As a result, even if DMG had the authority and correctly determined there to be "incapacity of a surety," it may not declare Powderhom in violation of Colorado's bonding requirements. ~ Federal regulations are to the same effect. OSM's regulation regarding surety incapacity, found at 30 C.F.R. § 800.16(e)(2), states that upon incapacity of a surety, the petmittee is deemed to be without bond coverage. If the permittee fails to post a replacement bond within an acceptable period, the operator is required to cease coal extraction and to begin reclamation of the site. The federal regulation does not, however, authorize enforcement action against the pennittee or operator who ceases operations. In fact, OSM considered this alternative and specifically rejected it: In the final rule for § 800.16(e)(2j, OSM has not adopted the provision for mandatory issuance of an NOV, and instead has specified that a notice must be given by the regulatory authority which specifies a reasonable period of up to 90 days within which the bond must be replaced. If the bond is not replaced by the end ~ Furthermore, shortly after Quaker acquired Powderhom and the Mine in 1997, the state required that the Bond amount be increased, and Powderhom complied with that requirement. Thus, Powderhom has fully complied with the Colorado regulations concerning the posting of a reclamation bond. The continued existence of the Bond is consistent with the state view that the surety continues to retain liability. iosza.~