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Snell &Wilmer L.L.F Mr. Mike Long Division of Minerals and Geology 1313 Shernran Street, Suite 215 Denver, CO 80203 December 29, 2000 Page 3 Frontier's subsequent loss of its certificate of authority does not create a violation. The relevant regulation states that "[u]pon the incapacity of a surety ..., the pennittee shall be deemed to be without bond coverage in violation of 3.02.1(2)." ." 2 CCR, 3.04.1(2)(b)(v)(C). To establish a surety's incapacity, [he State must demonstrate [hat the surety does not have the capacity to satisfy the financial obligation required by the bond. There has been no such determination here. State regulation provides that incapacity of a surety can result from bankruptcy, insolvency and license suspension or revocation. The mere existence of one of these conditions alone does not constitute "incapacity". While license revocation or suspension may prevent a surety from marketing its products in the State, suspension does not, in and of itself, constitute financial incapacity to satisfy the surety's obligations. Absent a demonstration of incapacity by the surety, the permittee must be considered to have Bond coverage in accordance with the regulations. This is consistent with the State's view that the surety continues to have ~ joint and several liability under the policy. Even if Frontier were deemed to be incapacitated, Powderhorn would no[ be in violation of 3.021(2), which states that: 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 perfornrance bond covering surface acreage to be affected. / Powderhorn is not conducting coal mining operations or otherwise disturbing the property. All disturbances occurred during the period in wlJiclr Frontier maintained its state and federal certifications. As a result, even if DMG determines [here to be "incapacity of a surety," it may not and should not seek to declare Powderhom in violation of State bonding requirements. III. THIRTY DAYS NOT A REASONABLE PERIOD OF TIME Where the Division issues a Notice of Violation, it "shall specify a reasonable period to replace Bond coverage, not to exceed 90 days." 2 CCR §3.02.1(2)(b)(v)(C). In an emergency safety situation or where other threat to Human health or the environment exists, a thirty day abatement period may be reasonable. However, where no such tlu-eats exist and the mine is not conducting coal mining or other surface disturbing activities, 30 days is not reasonable. The DMG has discretion to grant 90 days to obtain replacement coverage. Due to the difficult situation created by decertification of the surety, bankruptcy of the operator, the fact that no surface disturbance is occumng and there is no threat to public safety, human health or the ~ 6AiI