Category Archives: Coal

Updated Trends in U.S. Delivered Coal Prices: Volatility in U.S. Coal Prices Increases Pressure to Phase Out Coal Power

Clean Energy Action has questioned the practice of making long-term continued investments in coal-fired power plants for years. These concerns are driven by several factors including carbon dioxide emissions which in many states make coal plants the largest source of greenhouse gas emissions, emission of pollutants like mercury and sulfur dioxide, increasingly unfavorable economics, and the uncertainty of future coal prices and supplies.

The price of coal has changed greatly over the last two decades. This volatility puts continued investments in coal-fired power plants at risk of becoming stranded assets – assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities. Rather than adding pollution control equipment or other investments to keep coal plants online, regulators and utilities should consider making plans to phase out coal power.

Coal plants can’t operate without a stable supply of coal over their entire lifetime, which means that the long-term stability of coal prices and supplies are essential to the solvency of a coal plant investment.­­ In 2013, CEA published a detailed analysis of historical coal prices in each U.S. state to gain insight into their stability. The study revealed that prices rose steadily over the preceding decade, thereby continually increasing costs for coal based utilities.

In light of the recent coal industry bankruptcies, we updated this report to include more recent data and found that instability in the coal industry was paralleled by decreasing coal prices and persistently rising production costs, resulting in dangerously low profit margins. Our analyses indicate that utility commissions, utilities, and political leaders should seriously consider the unpredictable nature of fossil fuel markets when making decisions about long-term energy investments. Our findings point to the long-term economic benefits of investing in “free fuel” renewable energy resources such as wind and solar that have stable and affordable prices.

Xcel profits up sharply, profits from Colorado have more than doubled since 2005

Today Xcel Energy reported first quarter net profits of $241 million dollars, a sharp increase over first quarter 2015 net profits of $152 million, putting the Minneapolis-based company on track for yet another year of roughly $1 billion dollars in net profits.

Colorado communities typically account for between 40% to 50% of Xcel’s net profits (see page 8 of Xcel’s latest annual report).  2015 was no exception. Last year, Coloradans sent over $468 million in net profits alone to Xcel, 47% of Xcel’s $984 million 2015 net profits on electricity and natural gas sales (see page 34 of Public Service Company of Colorado’s 2015 annual report).

A decade ago, Coloradan’s sent Xcel only $214 million in net profits (see page 23 of Public Service Company of Colorado’s 2006 annual report).  In other words, in a span of 10 years, Xcel’s net profits from Colorado have more than doubled. A significant portion of that growth can be attributed to the combined expenditures of approximately $1.5 billion on aging coal plants on which Xcel receives both “return of” and “return on” those expenditures. Indeed, Xcel’s 2015 annual report states that increased net profits in 2015 were he “primarily due to the [Clean Air Clean Jobs] rider.”

In Xcel’s last report to the city of Boulder, Xcel stated that Boulder accounted for about 5% of its revenues (see item 9 on page 11 of Xcel’s 2010 report to the Boulder). Assuming that’s still the case (and that Boulder has a proportional contribution to Xcel’s net profit), approximately $25 million in after tax net profits alone was sent from Boulder to Xcel in 2015.

Imagine what Boulder – and Colorado – could do if a larger percentage of those millions of dollars remained closer to home, creating jobs and building a renewable energy-dominated 21st-century utility. Instead, Coloradans dollars are literally going up in smoke (Colorado spent roughly $250 million burning coal at Xcel plants in 2014, according to the Energy Information Administration’s Form EIA-923 fuel cost data) or heading off to Minneapolis to pay for Xcel’s expenditures on coal plants.

CEA_coal_graphic

 

Expand Coal Mining in Colorado? No Way!

Please join Clean Energy Action and others by signing this petition urging rejection of the ColoWyo Mine Expansion.

Let the Obama Administration’s Office of Surface Mining Reclamation and Enforcement and the Bureau of Land Management know that you oppose approval of the ColoWyo Mine expansion permit!

Today is the last day to act! Public comments must be submitted before February 19th.

Reject the Expansion of the ColoWyo Mine

Reject the Expansion of the ColoWyo Mine

I strongly urge you to reject the ColoWyo South Taylor Permit Expansion Area Project and support you standing firm with your January, 2016 commitment to a moratorium on new coal leases.

Expanding mining at the ColoWyo Mine threatens to not only destroy the habitat of sage grouse and other wildlife in the area, but would send millions of tons of toxic emissions into the atmosphere, contributing to climate change and threatening air, water, and human health. Continued expansion of coal mining when major US coal companies are faltering financially puts adequate reclamation into serious question and could leave taxpayers on the hook for millions in clean-up.

Our country needs to encourage broad development of clean, renewable energy from wind and sun that are free and abundant here in the west. The future is here! Please show courage and leadership and take action to promote the transition to sustainable, stable economies in our coal mining communities.

We want to leave a healthy planet for our children and future generations. Keep the coal in the ground! Reject the ColoWyo South Taylor Permit Expansion Area Project.

Thank you for your consideration,

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Together, we can:

1)            Protect the soil, water and endangered wild life of northwest Colorado. Do not expand the ColoWyo Mine into over 2000 acres of previously undisturbed land that drains into the Yampa River. This land, only 30 miles from Dinosaur National Monument, is largely prime sage grouse habitat.

2)            Keep the coal in the ground. Do not permit an additional 240 million metric tons of carbon and other toxic emissions to be released into the atmosphere. When this coal is burned over the next twenty years, it will threaten our health, air, water and climate.

3)         Transition Colorado into a sustainable, clean energy future fueled by wind and sun. Let’s move forward with 21st century sources of energy that don’t pollute and save ratepayers on their bills. It is time to push for a just transition away from coal, one that supports communities as they face the inevitable loss of jobs and regional economic instability that will follow when last century’s ColoWyo mine is depleted.

Additional Resources

ColoWyo Coal Mine Expansion Environmental Assessment

Office of Surface Mining Reclamation and Enforcement: ColoWyo Legal Notices and Outreach Letters

Coal Leasing and Self-Bonding Warnings Finally Heeded

Brief Overview:

  • After years of pressure from a coalition of groups including Clean Energy Action, the Obama administration initiated two critical reforms to the nation’s coal program, placing a moratorium on new federal coal leases and increasing scrutiny over Wyoming’s “self-bonding” policy.
  • A review of the 32-year-old federal coal leasing program is long overdue as lack of reform has failed to address climate change and has cost taxpayers billions of dollars.
  • While state and federal regulators ignored repeated warnings to take a hard look at “self-bonding” policies, the formerly second and third largest U.S. coal companies have gone bankrupt, potentially leaving hundreds of millions in mine reclamation costs to taxpayers.
  • Geologic facts underlie coal companies’ increasing production costs and financial insolvency, underscoring both supply concerns and the opportunity to take advantage of cleaner and more cost-effective sources of renewable energy.

Coal Reforms from the Rockies

How long does it take for a message to get from the Rocky Mountains to the halls of power in D.C.? In mid-January, after years of pressure from a broad coalition of environmentalists and landowner advocacy groups, the Obama administration took two critical steps to reform the nation’s coal leasing and mine reclamation policies.

Decision makers in D.C. may seem a far cry from Colorado yet these two decisions trace their origins to our state. Colorado groups including Clean Energy Action helped to initiate both reform campaigns, repeatedly warning state and federal regulators that, in addition to the devastating effects of climate change, the fiscal costs of inaction could rise to hundreds of millions – if not billions – of dollars.

In both reform efforts, Clean Energy Action played a catalytic role. In 2007, Clean Energy Action began to draw the attention of allied groups to legal frameworks for keeping carbon in the ground by opposing new federal coal leases. As early as 2012, Clean Energy Action began urging state and federal regulators to scrutinize “self-bonding” programs that allow coal companies, including some now in bankruptcy, to ensure reclamation obligations by passing financial stress tests.

Review of Reagan-Era Coal Leasing

On January 15th, the Obama administration announced a moratorium on new leases of coal mined from public lands. The Department of the Interior will begin a sweeping review of federal coal leasing, modernizing a program that hasn’t been updated in over 30 years.

In 1984, when the last review concluded, few understood the threat of global warming. Now, in 2016, it is clear that burning coal has a significant impact on climate change and federal coal, in the words of Interior Secretary Jewell, “contributes roughly 10% of U.S. greenhouse gas emissions.”

In 1984, coal companies had yet to begin driving the process, in the words of CU coal expert Mark Squillace, deciding “whether, where, and how much coal they want to lease.” In particular, more than three quarters of federal coal sales had only one bidder.

Bankruptcies and “Self-Bonding”

On January 22nd, prompted by a citizen’s complaint filed by the Powder River Basin Resource Council and the Western Organization of Resource Councils, the Department of the Interior gave the state of Wyoming 10 days (plus a short extension) to certify that the state’s mine clean up program satisfied federal reclamation laws. These laws require mining companies to provide adequate financial assurances that they will be sufficiently solvent to return mines to a usable or natural condition once mining at a site has ceased.

Wyoming’s “self-bonding” program has allowed coal companies to ensure future mining clean up costs on the strength of their balance sheets alone. This has become a risky proposition as the nation’s formerly second and third largest coal companies, Arch Coal and Alpha Natural Resources, have filed for bankruptcy. Their insolvency threatens to leave mines, including one larger than the City of San Francisco, scarring the Wyoming prairie.

Coal Leasing and Self-Bonding Warnings Finally Heeded - Arch Coal's Black Thunder Mine is unimaginably big - about the size of San Francisco
At over 47 square miles, Arch Coal’s Black Thunder Mine is slightly larger than the City of San Francisco.

In order for companies to continue mining operations, Wyoming’s self-bonding program requires companies to demonstrate a “history of financial solvency” that appears to be at odds with Arch and Alpha’s Chapter 11 bankruptcies. Disturbingly, the nation’s largest coal producer, Peabody Energy, also faces potential bankruptcy, having lost 99% of its market value since 2011.

The Full Cost of Coal

While the administration’s actions to address coal leasing and self-bonding are laudable, it is hard not to imagine how different things could have been had this administration or previous administrations addressed these issues. According to a 2012 study from the Institute for Energy Economics and Financial Analysis that called for a moratorium on new coal leases, 22 of 26 coal sales since 1991 had only a single company bidding on publicly-owned coal. As a result of lack of competition, taxpayers lost out on billions of dollars in tax revenue.

The administration’s programmatic review of coal leasing promises to “provide a fair return to taxpayers” and to “account for the environmental and public health impacts” of the federal coal program.

The full cost of coal must reflect public health impacts from air pollution that damages the brains of our children, and the hearts and lungs of our families, as well as the disturbance of our lives and livelihoods from increased natural disasters and a changing climate. Placing a price on federal coal that promises a “fair return to taxpayers” must include a strong accounting of coal’s external impacts.

Who’s left on the hook?

The collapse of faulty self-bonding programs represents further potential losses for the public. States’ failures to heed repeated warnings may leave taxpayers on the hook for the unpaid reclamation liabilities of bankrupt coal companies.

In Wyoming, the state has struck a deal with bankrupt Alpha Natural to allow the company to continue mining while securing only $61 million of Alpha’s $411 million in reclamation obligations. The math isn’t pretty – that’s less than 15 cents on the dollar.

In Colorado, $100 million of future reclamation work is self-bonded. The state has given assurances that it is “moving away from self-bonding” but has not yet offered details on how quickly.

Coal & Renewables: Very Different Prospects

As coal’s role in society is re-evaluated, state and federal regulators would do well to heed warnings that they have thus far been quick to write off. In particular, regulators need to understand that beyond the threat coal poses to our health and environment, intractable geologic facts underlie the insolvency of our largest coal producers.

When any substance is mined, the easiest deposits are extracted first. Succeeding layers are more and more difficult to access, with more and more rock and soil to remove. Because of this inexorable logic, Powder River Basin coal productivity declined 25% between 2002 and 2013. From 2002 to the end of 2015, Powder River Basin coal prices have risen 72%. Consequently, increasingly expensive coal is increasingly unable to compete with renewables and natural gas.

Coal Leasing and Self-Bonding Warnings Finally Heeded - Powder River Basin labor productivity 2002 to 2013

Coal Leasing and Self-Bonding Warnings Finally Heeded - Powder River Basin average price of coal 2013
Powder River Basin coal has increased in cost 72% from 2002 through the end of 2015. 2014 and 2015 data were not yet available in the Energy Information Agency’s coal data browser.

 

 

 

The coal industry’s unprecedented rate of insolvency should concern the regulators who oversee fuel resource planning decisions, customer rates and reliability. Coal still provides 30% of the nation’s power and nearly double that in Colorado. Yet the prospects for mining coal profitably appear terribly bleak.

In contrast, wind and solar are more cost-effective than ever. Recently renewed federal tax credits for wind and solar offer an opportunity to phase out coal power and replace it with more cost-effective sources of energy that do not contribute to air pollution and climate change. Combined with the falling cost of energy storage, a renewable-powered grid becomes a viable possibility. Let’s hope that this time the message gets through more quickly.

Feb. 18, 5:30 pm: Richard Revesz: Struggling for Air

Power Plants and the “War on Coal”
Special CU Guest Lecture: Richard Revesz

New York University School of Law
Lawrence King Professor of Law
Dean Emeritus
Director, Institute for Policy Integrity

5:30 pm, February 18th
Wolf Law Building, Room 207
University of Colorado School of Law

 

Struggling for Air: Power Plants and the “War on Coal” chronicles Richard Reveszthe fateful decision by Congress to grandfather existing coal power plants from the permitting requirements to install modern pollution control technologies and the health, legal and political reverberations of this crucial decision including the long struggle of Republican and Democratic administrations alike to reclaim public health safeguards in light of the heavy multipollutant burden from existing power plants and the perverse and potent incentives grandfathering created for prolonging the utilization of aging, inefficient and high emitting existing plants.

 

Discussants:
Sharon Jacobs, Associate Professor, University of Colorado Law School
Vickie Patton, General Counsel, Environmental Defense Fund and Adjunct Professor, University of Colorado Law School

 

This event is free and open to the public but registration is required. Register here.