Coal’s Messy End Game

coal_minersby James A. Bacon

The U.S. coal industry is in collapse. Market forces in the form of cheap, abundant natural gas have put coal at a huge competitive disadvantage while environmental initiatives have gutted demand by compelling the shutdown of coal-fired power plants not worth retrofitting with scrubbers. Earlier this week Peabody Energy, the largest coal producer in the country, announced that it would seek bankruptcy protection. Only one company in the Dow Jones Coal Index, Consol Energy, has avoided that fate.

Writing in Slate Magazine, Daniel Gross poses an interesting question:

When companies file for bankruptcy, the fact that they can’t meet their obligations to creditors like banks or bondholders isn’t that much of an issue. They can absorb the loss and wind up with ownership of the company. But bankrupt coal firms will have a hard time meeting their obligations to the environment, to employees, and to retirees. Which means they will either need a bailout or they will suffer further obloquy when they walk away from commitments.

Coal mining in Central Appalachia is an immensely destructive business, especially strip mining and mountaintop removal, which quite literally moves mountains, alters drainage flows, and releases potentially toxic elements into the water. Federal regulations require coal companies to stabilize the land in order to reduce environmental hazards. When coal was booming a few years ago, that wasn’t a problem. With major coal companies going bankrupt, there are growing questions whether coal companies can fulfill their obligations.

Virginia-based Alpha Natural Resources has $640 million in self-guaranteed liabilities in reclamation costs, reports the Washington Post. Will a western Virginia bankruptcy court judge honor the debts of creditors and suppliers or obligations to the public?

Meanwhile, coal industry pension funds, which have always been shaky, now are in deep doo-doo. The United Mine Workers of America’s 1974 pension plan was said last year to be $2 billion under-funded.  The plan asked for participating unionized companies to increase their contribution by 10% to $6.05 per union employee per hour worked, along with benefit cuts for future employees. But it is questionable how long bankrupt coal companies can sustain such payments. Who, if anyone, will make good promises made to retired coal miners?

Bacon’s bottom line. Coal is a dirty, unsafe fuel, and most of us won’t miss it. But the transition to a clean-energy economy will be messy. For Virginia’s coalfield region, the demise of the coal industry doesn’t mean just the loss of jobs, as debilitating as that will be. It could well mean environmental clean-ups never completed and pensions never paid.

There are currently no comments highlighted.

19 responses to “Coal’s Messy End Game

  1. Here are 2 views of coal …

    At a meeting of natural gas leaders here is what Bob Orndorff, Senior Policy Advisor for Dominion Resources said … “Coal is still king and we’re not displacing coal and I think that is a really important message. I think what we’re looking for is that we want to have equal representation because we’re (gas is) as important as a commodity for West Virginia as coal is.”
    http://www.wdtv.com/wdtv.cfm?func=view&section=5-News&item=Natural-Gas-Leaders-Meet-for-Energy-Roundtable-29581

    And at the same time Norway, “JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley no longer want to invest in coal, showing that the industry’s troubles are not personal or political. It’s just business.” JPMorgan says .. “‘2016 will probably go down as the worst year in history for U.S. coal,’ … U.S. production declined 31 percent in the first quarter year-on-year.” Peabody, once regarded as a titan in the American energy industry, is just the latest in a string of at least 50 coal industry bankruptcies since 2012.

    As JB says we are right to be concerned about the liabilities that will be left behind. Peabody, once regarded as a titan in the American energy industry, is just the latest in a string of at least 50 coal industry bankruptcies since 2012. “Peabody has more than $2 billion in mine cleanup liabilities, nearly $1.5 billion of which are unfunded, including nearly $900 million in Wyoming alone.

    And the worry is real because Peabody has a history of spinning off liabilities into new companies. Patriot Coal was one such spin off where Peabody dumped most of its Appalachian mountain top removal mining sites and its inadequately funded worker pensions. When Patriot inevitably failed, Peabody was long gone. http://ecowatch.com/2016/04/13/peabodys-bankruptcy/

    We better take a look at those laws … both bankruptcy and spin-offs. We have already been deceived by the coal companies who for years misreported the amount of coal they mined from US public lands, underpaying their leases.

  2. It’s pretty clear – the taxpayer is going to end up with the remediation of the land – as they did once before with the clear cut forest land that ultimately became National Forests.

    And taxpayers WILL ALSO end up with the pensions via the Pension Benefit Guaranty Corp.

    If the govt WILL end up with the remediation of those lands, why not turn it into a jobs program for the folks who lost their coal jobs?

    replant and reforest and how about solar panels and wind turbines on the flattened mountain tops? Surely if those who live there could stand to see the mountaintops blow off and dumped in the valleys can “stand” to have Wind Turbines in their views now, eh?

    The pension thing – there are currently 5000 – yes, five thousand companies whose pensions were taken over by the govt yet when reading BR – all we ever hear about is unfunded public pensions and poster children like Peuto Rico and Indiana.

    Make no mistake – both private AND public sector have their issues – but not all companies go broke and not all states do either – but for the ones that do – the Govt ends up being the entity of last resort – because real people are the victims and we do not consign them to live on the streets when this happens.

    and before Jim B goes on a rant about the disaster scenario of such bailouts – consider this:

    ” PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans.”

    Now – Jim B has ALSO complained about govt “FORCING” companies and people having to buy a product they don’t want to buy.

    In this case – like MANDATED insurance… and it’s done with those nasty govt rules and regulations – to boot!

    so the pensions of the coal workers will be preserved – not 100% whole, but in part, and not a penny of taxpayer dollar is involved.

    How does that snap your socks Jim?

    😉

    • I’m well aware of how PBGC works.

      Consider this headline from the Economist: “Betraying the promise: America’s Congress has allowed a pension-insurance scheme to become dangerously underfunded.”

      As of its 2015 report, PBGC had total assets of $87.7 billion and liabilities of $164 billion—a deficit of $76.3 billion, a record. For multi-employer pensions the deficit is $52.3 billion.

      Last year the PBGC warned that it will require significantly higher premiums to keep its multi-employer scheme running. And last year it said, with respect to the scheme, that “the risk of insolvency rises over time, to exceed 50% in 2025.” It added that the risk increases to more than 90% within 20 years.

      How does this snap your socks, Larry?

    • Your comments are so utterly uninformed it is difficult to decide where to start to rebut your lack of knowledge on issues about which you expound upon so authoritatively.
      (1) There is not enough wind in southwest Virginia to justify an economically viable wind farm.
      (2) Virginia coal is produced almost exclusively by non-union employers and there are no pensions anymore…every company offers a 401k. There are less than 100 UMWA miners in Virginia and they all work for ANR which is in bankruptcy.
      (3) Every surface mining plan approved by DMLR and OSM in the past 30 years requires a continuous reclamation of land contiguous to active extraction operations so there are no massive reclamation projects of any currently disturbed lands. My company had only underground mines and the surface area disturbed was/is insignificant.
      (4) Your comments about the people of SW Virginia needing to accept your fantasy of uneconomic wind turbines is really condescending. I expect better on this blog!!!

  3. what snaps my socks is the fact that we have the PBGC as well as the FEMA flood insurance program as well as the EPA storage tank fee program as well as crop insurance, and a bunch of others – all predicated on collecting taxes from those engaged in commerce – to build funds to protect taxpayers and workers with pensions, those that live near flood zones, and near underground storage tanks, etc…

    that DO require from time to time – adjustments to catch them up with experience – as you did find out with the Long Term Care insurance and characterized as “jacking up” your rates…

    the point here is that this is NOT the free market – at all – neither for the coal miners nor for your long term care insurance.

    In both cases, the govt is involved – and you seem to want that govt involved in your long term care insurance but not so much for other folks.

    right?

    how about it?

    😉

  4. I think the moral of the story is that many of us take for granted the “protections” we are provided by the govt – not even realize it and then we getall stoked up on other issues often with the help of anti-govt think tanks and right-leaning media ….

    it’s those dratted “leftists” that want the nanny state.. right?

    and I’m pointing out that for many of us that we actually have a little bit of hypocrisy in our positions because we EXPECT to be “protected” for our own stuff even as we say we are opposed to the govt involving itself in protecting others.

    we say – it’s a failure of govt – when Social Security and PBGC face unfunded liabilities/solvency issues – usually decades in the future but we expect the private sector to not have those issues – but in reality they do – also and the irony is – we expect govt to mitigate it for the private sector to “protect” us even as we condemn the govt for having similar problems with their own long-term funds like Social Security and public sector pensions.

    so if the private sector sells us insurance – based on predictions of the future -and they end up raising our rates or worse – just failing to deliver and walking away from pensions or even insurance payoffs – we see that as “fraud” and yes.. we expect that old nanny state govt to help us out.

    right?

      • we’ll keep working on this. There is, in my view hypocrisy in the views about govt, regulation and the “free market” especially when it comes to insurance

        the simple thing that we hear now days about health insurance, for instance, is prohibiting insurance companies from denial of coverage for pre-existing conditions even in a repeal-Obamacare scenario. In other words, they want to keep that part of Obamacare (as well as that same provision in Employer-provided).

        In a REAL free market -insurance denies coverage to those it deems a risk and that would automatically exclude anyone who has chronic pre-existing conditions.

        the folks who say they want the govt out of insurance – need to admit that they’re not really advocating that at all if they want to prohibit denial of pre-existing conditions.

        In a true free-market – Long Term Care insurance would ALSO be between YOU and the COMPANY. They would offer terms and you would decide if you want those terms – as well as the risk of the company reneging later. – that the real free market – there is no one to come rescue you if they company fails to deliver what you thought you were going to get.

        Once you say – you want the govt to protect your interests – you’ve crossed over the rubicon.. It’ like saying you’re only a little bit pregnant because it’s not just you deciding what level of govt – it’s everyone.

        You don’t want the insurance company to “jack up” their rates – but that’s exactly how both the private and public sector deal with changing demographics.

        When the govt wants/needs to adjust rates for Social Security and Medicare due to actuarials (just like the long term care) – the faux free-market types don’t say “jacking up” the rates. Nope, it’s called a failure of govt in trying to provide an unsustainable benefit that they ought not to be providing in the first place – instead of letting the “free market” do that.

        The Bottom Line here is that if you want government to be involved in insurance – to protect you – that’s NOT the free market and no amount of denying it will change it.

        • Larry – I don’t think it’s all or nothing. We don’t have to pick either full government control over the means of production or a complete absence of all government regulation.

          A free market can exist with government regulations to protect against, or punish, fraud, misrepresentation, safety, health and the like. Pennsylvania chartered insurers in 1792. New York established a Department of Insurance in 1859.

          While reasonable people can disagree over a particular regulation or regulatory scheme, many would agree regulation should not replace consumer decision making, control business investments or expenses, or act as a barrier to competition. Generally, the government makes poor economic decisions. The one exception to loose regulation vis a vis prices, market allocation, market entry/exit and duty to serve is common carrier and public utility regulation. A natural monopoly is generally regulated heavily in exchange for an exclusive territorial franchise. Common carrier regulation has its roots in the Middle Ages and, some say, earlier, to Ancient Rome.

          There should be a clear process to add, change or eliminate regulations and those regulations should be clearly authorized by underlying regulation. Moreover, as most federal agencies do periodically, old regulations should be revisited with a goal of elimination or modification when that better serves the public interest.

          Viewing insurance from a historical perspective, it’s a regulated industry with considerable freedom for both the public and the insurance companies to make economically sound decisions.

  5. The commentary above demonstrates a stunning lack of knowledge about the coal industry. As a 32 year veteran of the industry I can state that the Obama administration’s goal of eliminating coal from the energy matrix has been very successful. Before low natural gas prices there was a successful drive by the EPA and the MSHA to destroy the industry by sending the cost of production out of control making it a less attractive alternative to gas. I can give a lot of specific information about this process but was fortunate to exit the business in 2010 before Obama’s draconian policies were fully implemented.
    The bottom line for everyone is that coal is the energy source which is most stable in cost and electric consumers will see cost increases over the long term.

    • if electricity becomes expensive, people use less. That’s a proven reality that is seen in all other developed countries as well as New York and California.

      the cost of electricity produced from coal – should have ALWAYS INCLUDED what it would take to mitigate the damage to lands where it is mined as well as coal-ash ponds, and mercury and sulfur and nitrogen airborne pollution.

      Coal was a subsidized fuel and the costs are borne by taxpayers through direct subsidies rather than those costs being incorporated into the price of electricity – regardless of who was/is POTUS.

      And it’s NOT the POTUS who makes the regs. Congress has always had the authority to explicitly overturn any regulation it disagrees with. It could have completely exempted coal from regulation if it wanted to and the reality is most the American people themselves support the phasing out of coal.

      • Larry, I’m not going to address the substance of your argument, but will again comment on the procedures. A federal agency cannot simply decide to adopt a rule with Congress having the ability to override by changing legislation.

        An agency must have underlying statutory authority to adopt rules and to adopt rules covering the subject at hand. The Department of State cannot adopt rules governing Fredericksburg National Military Park, and the NPS cannot adopt rules on travel to Cuba. Similarly, an agency cannot adopt a rule that contradicts language in a statute or clear Congressional intent. For example, the IRS adopt regs that impose a tax rate higher or lower than what is in the statute.

        Except in case of a true emergency, such as an attack on the U.S. by a foreign power, or for truly ministerial rules (such as specifying the number of copies of a petition for relief that must be filed with the agency), the agency must issue a notice of proposed rulemaking that sets for either the proposed rule or the substance thereof; the reasons for the new, changed or repealed rule; and provide for public comment. The agency must consider all the comments and address any key points raised. For example, if a commenting party explained that the IRS was unlawfully trying to impose a tax rate that was 5% more or less than what is specified in the statute, the agency must address this comment. And, of course, we have a right to expect agency leadership, including political appointees and professional staff, will not step beyond where they know or should know, the boundaries of the law exist.

        I’ve been involved with federal agencies, most especially the FCC, FTC and Department of Commerce, regularly since 1984. I’ve observed a trend where agencies, both executive and independent, push the boundaries of their enabling statutes and the APA. Irrespective of the merits of this reach (some of which I may favor as policy), this trend is a major threat to our republican form of government; separation of powers and our constitutional rights.

        Chevron deference needs to be reduced (a judicial doctrine governing agency rulemaking authority), and judges likely to be overly deferential to agency and executive action should not be confirmed by the Senate. Even then Senator Obama complained about this when he announced his intent to filibuster the nomination of appeals court judge Alioto to the Supreme Court.

        Larry, your world is too scary for me. I’d rather see things not get done than a rouge government.

    • The demise of coal is not about Obama. It is about the age of the industry’s plants and the pollution that has created health consequences over the years when we had no other choice.

      From a Credit Suisse Report … 70% of our coal plants and all of our nuclear facilities are more than 30 years old. The ‘small’ coal plants (<300 MW of capacity) are the hardest to economically justify for large equipment upgrades. These plants are generally older and less efficient in energy conversion, which further strains the economic justification for reinvesting large amounts of capital. Of the small fleet, 50 GW are over 40 years old and have no environmental controls; if we broaden the conversation to plants lacking scrubbers, the fleet at risk grows to 69 GW,” or 20% of the total US coal fleet. (Credit Suisse, Growth from Subtraction 2011)

      Regarding health costs…. An article from Dr. Paul Epstein from the Center for Health and the Global Environment at Harvard’s Medical School attempted “to quantify the true costs of coal in terms of economic, health and environmental impacts. Dr. Epstein’s study details how each stage of coal’s life cycle extraction, transportation, processing, and combustion has enormous costs, all of which are directly borne by the public. ” He estimates they add $90/MWh and $270/Mwh to the cost of fossil fuel. http://www.desmogblog.com/true-cost-coal-half-trillion-dollars-year

      We can’t talk about how cheap coal is. It is very expensive when you include the tax, environment and health effects not included in that price.

  6. TMT – re: ” A federal agency cannot simply decide to adopt a rule with Congress having the ability to override by changing legislation.

    An agency must have underlying statutory authority to adopt rules and to adopt rules covering the subject at hand.”

    then how can anyone say that it is “Obama” doing these things on his own?

    if he is truly breaking the law – a simple initial court challenge would stop him – as it did with the EPA storm water regs in NoVa.

    Every POTUS pushes the envelope. It’s not unique to this administration at all.

    Calling it “rogue” is amusing given some of Bush’s shenanigans

    My point is , that Congress has the authority to take away any discretion on regulations they don’t want. They can just flat outlaw something they don’t want the Administration doing – like – moving prisoners from Gitmo to US Soil.

    they could, if they wished – exempt coal entirely from regulatory rules.

    the only thing “rogue” is the dialogue from those engaged in partisan politics.

  7. Jim misses a few points in an otherwise interesting post.

    (1) One of the reasons ANR is Bristol went bankrupt is that it cut stuck with massive reserves of metallurgical coal it couldn’t sell. It picked them up when it bought notorious Massey Energy for $7.1 billion in 2011. The global met market then looked good and all of the coal was intended for export overseas to Asia, Brazil and Europe. But the met market crashed and the coal had nowhere to go. This coal has ABSOLUTELY NOTHING TO DO WITH OBAMA’S GREEN POLICIES. It is used to make steel in China, not “keep our lights on.”

    (2) ANR has been trying to get rid of its pension obligations while still paying hefty bonuses to its executives and remaining one of the top political donors to politicians in Virginia. Last year it still managed to hand out nearly $600,00, according to VPAP.
    (3) There was internal strife with ANR over skating on paying pensions.
    (4) The UMWA has no power in Virginia.
    (5) When now bankrupt Peabody want to get out of expensive-to-mine Appalachian coal it spun off the operations with Patriot Coal so it could kill off the pensions and safe Peabody the legal responsibility. Can anyone spell “Ethics in BUsiness?”
    (6) On mountaintop removal, companies were supposed to either pay a bond in advance or use their positive balance sheets as collateral. This is an insane choice, but politicians in the coalfields are so paid off they are first in line to kiss coal’s ass. So, yes, it looks like we taxpayers will end up with the bill. This, of course, after he had to endure all the flag-waving bullshit from the coal industry

    • So add slow down in China to the structural issues, not to mention the loss of Senator Byrd in WV. Although it sounds like he was saying in 2009 that change was coming. Maybe he would have seen the need to move to nat gas sooner in WV.

  8. Ran out of time above, but I find this 2009 Politico article fascinating:
    http://www.politico.com/story/2009/12/byrds-coal-comments-rock-wva-030770

    Sounds like Byrd was on board with Obama admin coal direction.

  9. Interesting commentary. Thank you.

    All the talk of Uncle Sam picking up the coal “pieces” ties back to an old Jim Bacon concern: that having the probability/possibility that government will pick up the pension plan, deal with the environmental destruction,, etc. warps the free market by causing “privates” or “privateers” — choose your own term — to take stupid risks and/or ignore real constraints.

    If I interpret correctly (and I might not), Jim Bacon blames government generally for not seeing/anticipating all present and future issues of its actions and expects the privates to “scam” (my word) in every conceivable way to benefit shareholders. I wonder, however, if there should be some method of we, taxpayers actually able to “be beware” when these privates/privateers and their high-priced lawyers search every law and regulation for additional methods of getting each penny with virtually no risk. And do so with the help of public officials who see primarily/only their own benefit and little of the loss to taxpayers who — seemingly inevitably — pick up the eventual tab.

    Who, in the system we have today, fights for the generations (we hope) of future taxpayers?

  10. Pingback: German solar cell maker opens plant in Tennessee | Southeast Energy News

Leave a Reply