Coal Tattoo

Patriot Coal: Safety scrutiny adding to costs

Often what we hear during quarterly earnings calls with coal company officials are concerned about how additional regulatory scrutiny on the environmental side have them worried … Today, in releasing its earnings report for the 2nd quarter of 2010, Patriot Coal pointed to increased costs from heightened safety scrutiny:

Operating cost per ton totaled $56.69 in the 2010 second quarter, compared with $52.41 in the prior year second quarter. More than 60 percent of the increase in cost per ton was a result of lower production due to more comprehensive regulatory inspections and related ventilation adjustments in a number of our mines, as well as roof falls at the Harris and Highland complexes.

In its news release, under the heading of  “safety,” Patriot had this to say:

During the quarter, seven of the Company’s operations were recognized for their strong 2009 safety performance by the West Virginia Office of Miners Health, Safety & Training. Additionally, the Samples Highwall Miner operation in the Paint Creek complex was presented the 2009 District 4 Pacesetter Award by the U.S. Mine Safety and Health Administration.

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The big financial reform bill that just passed Congress and is awaiting President Obama’s signature contains some new mine-safety reporting requirements for publicly traded companies.

According to a news release issued yesterday by Sen. Jay Rockefeller’s office:

In one of his final actions as a Senator, the late Senator Byrd (D-W.Va.) teamed up with Senator Rockefeller to secure an amendment to the Wall Street Reform conference report to hold mining companies accountable for their safety records. Specifically, the mine safety amendment requires that publicly-traded mining companies include serious mine safety violations in their public filings with the Securities and Exchange Commission (SEC), which are closely tracked by shareholders and industry analysts. Mining companies that fail to properly disclose this information would face SEC penalties.

The language would require companies that mine coal or have subsidiaries that are mine operators to tell the U.S. Securities and Exchange Commission and their stockholders about the number of violations, enforcement orders and fines issued to their mining operations.

Sen. Rockefeller said:

Senator Byrd and I fought for this measure because safe mines are good for business, and that makes a real difference to families who see their loved ones go to work every day in our nation’s coal mines.

United Mine Workers President Cecil Roberts and West Virginia Congressman Nick J. Rahall warned this morning that a crucial UMWA pension plan — covering 120,000 working and retired miners — is at risk of insolvency without some kind of fix.

The fix proposed by Rahall and the union has the support of the Bituminous Coal Operators Association, but it received a cold reception today from the Obama administration during a congressional hearing before the House Natural Resources Committee that Rahall chairs.

You can read all the testimony here, but I’ll try to summarize the situation as best I can, and provide  more detail and context than my post last night alerting readers to today’s hearing.

First, the UMWA was a bit upset with that post last evening, so let’s allow Cecil Roberts some space here to explain why he believes Rahall’s H.R. 5479 is so important, to protect pension benefits provided to UMWA members under what is known as the 1974 Plan:

The retirees and surviving spouses who depend on the 1974 Pension Plan live in all 50 states, but the majority of them still reside in the coal mining states of West Virginia, Pennsylvania, Kentucky, Illinois, Virginia, Alabama, Ohio and Indiana. Many of the retirees are elderly with nearly 40 percent of the retired population over 75 years of age and about 17 percent of the population over 85 years of age. The 1974 Plan provides them with modest but crucial income.  The average pension benefit for a retired miner currently receiving benefits from the 1974 Pension Plan is $590 per month and for a surviving spouse the average benefit is about $304 per month.

In addition, noting the recent mine disasters at Upper Big Branch, Sago and Crandall Canyon, as well as the thousands of deaths from black lung disease, Roberts told lawmakers:

I think any reasonable observer would agree that coal miners work in harsh conditions that endanger their lives in many ways. They should not have to worry about the modest pensions that have been promised them after they retire.

OK … before we move to the details of the legislation, a little history is necessary …

When it passed the 1977 federal strip mining law, Congress created a tax on coal production, meant to raise funds to reclaim coal-mine sites that were abandoned prior to the law’s requirement that operators clean up after they’re done mining.  Folks who have followed the issue know that the Abandoned Mine Land program hasn’t quite lived up to its promise, at least in part because Congress and the Office of Surface Mining have allowed money to be diverted from its primary purpose — cleaning up dangerous coal-mining sites — to other things. We outlined this whole problem a few years ago in a Gazette series, and this story summarizes it pretty clearly.

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Rep. Nick J. Rahall’s House Natural Resources Committee is scheduled to hear testimony tomorrow morning on a Rahall bill that would allow the transfer of money from the federal Abandoned Mine Land Fund to bail out the troubled United Mine Workers of America pension plan.

Rahall, a longtime friend of the UMWA, quietly introduced the legislation, H.R. 5479, last week. He called it the “Coal Accountability and Retired Employee Act of 2010.”

Basically, it would extend the existing practice of transferring money needed for the UMWA’s retiree health-care plan so that AML funds can also be sent to the union’s pension plan. The health-care transfers — the largest of many diversions of AML money for other purposes — have been going on since 1996, as we explained in our 2004 series on the mine cleanup program.

The UMWA pension plan covers about 120,000 current and former UMWA members, and union President Cecil Roberts is scheduled to testify in favor of Rahall’s legislation at tomorrow’s hearing.

Rahall is seeking to protect the pension plan, which lost more than one-fifth of its assets to the financial crisis that began in 2007, and to avoid major labor disruptions that could occur if operators are asked to greatly increase their contributions when the existing UMWA national contract expires at the end of 2011.

Gazette photo by Chip Ellis

Does the coal industry help or hurt West Virginia’s state government budget?

The conventional wisdom is that coal keeps the state running, and is a — if not the — major driver behind the state budget (not the mention the overall state economy). That’s the argument consistently put forth for years by the industry, its friends in political office, and by various economists working for the mining lobby.

But a new, must-read report from the folks at Downstream Strategies and the West Virginia Center for Budget and Policy raises major new questions about that bit of conventional wisdom.  According to the report:

While every job and every dollar of revenue generated by the coal industry provides an economic benefit for the state of West Virginia and the counties where the coal is produced, the net impact of the West Virginia coal industry, when taking all revenues and expenditures into account, amounted to a net cost to the state of $97.5 million in Fiscal Year 2009.

That’s right — a net cost to the state of $97.5 million.

For example:

The coal industry in 2009 paid $307.3 million in severance taxes, corporate net income tax, business franchise tax and other taxes. But, the state spends $113.7 million to support units of government that regulate mining and for the repair of the state’s coal haul roads. So, the report concludes that industry in this respect provided a net benefit to the state budget of about $193.6 million.

Or:

The state provides  variety of tax credits and subsidies that amounted to nearly $174 million in 2009 — all of which show up as “expenditures,” or costs to the state budget of the coal industry.

(There’s a handy chart of all of the revenues and expenditures at the end of the Executive Summary of the report).

The report, written by Rory McIlmoil and Evan Hansen of Downstream Strategies and Ted Boettner and Paul Miller of the West Virginia Center for Budget and Policy, is similar to the previous analysis done on coal’s impact on the Kentucky state budget by the Mountain Association for Community Economic Development. It was being released today along with a similar report on coal’s impacts on the Tennessee state budget.  Both reports are available online here.

Broken down simply, the West Virginia report tries to account for all of coal’s contributions to the state budget and compare those contributions to the expenditures of state money made necessary by the coal industry. This is quite different from what is normally done in reports like the West Virginia Coal Association project released earlier this year, which promoted coal’s benefits but ignored any costs.

The report makes one thing clear from the start:

Coal plays a significant role in West Virginia’s economy, contributing hundreds of millions of dollars in state and local revenue and providing well-paying jobs to tens of thousands of West Virginians.

But:

… the size of the coal economy, while substantial, is not as considerable as previous accounts suggest. Further, such accounts have only presented coal’s benefits; our estimates provide an initial aacounting of both benefits and costs.

As estimated in this report, the industry itself — including direct and indirect employers — actually costs West Virginia state taxpayers more than it provides.

Such an accounting is important, for projected declines in production, should they prove accurate, will further diminish coal’s contribution to state revenues, while the negative impacts resulting from coal industry activity will result in ongoing costs to the state and its citizens.

Today’s release of the West Virginia and Kentucky reports is being promoted by the Sierra Club, and the West Virginia report was partly funded by the Sierra Club and the Natural Resources Defense Council (other contributors are listed in the acknowledgments section). And the authors previously issued another Coal Tattoo must read, The Decline of Central Appalachian Coal and the Need for Economic Diversification.

Among the more interesting parts of the report concerns the “legacy costs” of the coal industry, those for long-term acid mine drainage pollution, damaged roads and bridges and injured or sick workers. These items were actually not considered in the report’s accounting, but the authors make clear how important they are:

Overall, the legacy costs associated with past and future coal industry activity must be considered in examining the total impact on the state. External costs resulting from coal industry activity, including the costs to human health, for repairing damage to personal property, and in the value of lost economic opportunities resulting from the loss of clean water and timber resources, for instance, were not considered in this report. However, they all represent real costs to society, and should be considered in any full accounting of the benefits and costs of the coal industry.

Among other things, the authors recommend:

— Maintaining the revenues currently generated by the workers’ compensation coal tax and creating a “Permanent Diversification Fund” that would support short- and long-term economic development goals and insure against the potential for future declines in coal-related revenues.

— Increasing the coal severance tax rate and distribute the additional funds to coal-producing counties.

— Increase the per-ton fee on coal haul trucks.

The report concludes:

As mining declines in the future, the potential loss of state revenues will make it even more difficult to cover the annual and legacy costs of coal. Therefore, state policy related to energy and economic development — to the extent that it supports the coal industry — should be reconsidered, and new policies should be enacted that reflect the recognition of these realities.


Massey Energy: We are not for sale

Massey Energy today issued a news release to deny media speculation that the Richmond, Va.-based coal giant is being prepared for sale:

These reports are not true. Massey does continue to have discussions with several entities regarding various asset sales and/or Joint Venture opportunities that it feels will bring value to the shareholders.

One media report I saw included this speculation:

Massey, the owner of the West Virginia mine where 29 people died in an explosion last month, also gained on speculation that its shares, which have fallen 41 percent since the accident, make it a target for acquisition.

“There’s always rumors,” said Pearce Hammond, an analyst at Simmons & Co. International in Houston. “Number one, Massey has attractive assets, and number two, the stock has fallen quite a bit. Yes, it could, but I personally don’t think it’s likely at the moment.”

Hammond said he would be “very surprised” to see a buyer step in because of pending investigations of the accident.



News from Massey’s annual meeting in Richmond

This image provided by Rising Tide DC, shows a banner that was hung in the Palm Court of the Jefferson hotel as part of a protest during the annual meeting of Massey Energy at the hotel in Richmond, Va.,Tuesday, May 18, 2010. The environmental group said two group members were arrested after unfurling the banner that read “Massey: Stop Putting Profits Over People”. They were charged with trespassing and were expected to be released. (AP Photo/Kim Hyunh via Rising Tide DC)

Here’s AP’s dispatch from today’s events at the Massey Energy Annual Meeting:

RICHMOND, Va. (AP) — A mixture of union representatives and anti-mining activists gathered outside a historic Richmond hotel Tuesday morning to protest against a common foe — Massey Energy Co.

Hundreds of people sang songs, chanted and held signs across the street from the Jefferson Hotel, while Richmond-based Massey’s board opened its annual stockholders meeting inside. Their protests were focused on Massey CEO Don Blankenship, calling for him to resign or to be prosecuted on environmental and workplace safety issues.

The meeting has attracted more attention than usual because it comes six weeks after 29 miners died in an explosion at Massey’s Upper Big Branch mine in West Virginia. The blast is the nation’s worst coal mining disaster in 40 years and has prompted an outpouring of criticism of Massey.

At least two people were arrested inside the hotel by Richmond police. Hotel officials declined to comment, and police did not immediately identify who was arrested or why.

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Sisters-in-law Frances Ervin, left, and Doris Ervin, right, both of Castlewood, Va., listened to speakers during a prayer vigil held in front of Massey’s headquarters in Richmond, Va. Monday, May 17, 2010, for Massey miners killed at the company’s Upper Big Branch mine recently. They said both of their husbands died from health issues related to mining. (AP Photo/Richmond Times-Dispatch, Alexa Welch Edlund)

After a prayer vigil last night, protesters are gearing up this morning at Massey Energy’s annual shareholders meeting in Richmond, Va.

The Richmond Times-Dispatch reports:

After a raucous rally in Monroe Park, nearly 1,000 protesters marched up Franklin Street toward the Jefferson Hotel and the annual meeting of Massey Energy Corp. this morning.

The protesters are urging Massey shareholders to fire CEO Don Blankenship.

The AP had a preview of the shareholder protest moves expected at today’s meeting, and there’s a Webcast of the annual meeting here. Meanwhile, check out the latest National Public Radio report on the Upper Big Branch disaster here.

This just in:

Investor Coalition Cites Record of Serious Safety Violations

RALEIGH – A coalition of nine public institutional investors representing approximately over $500 billion in assets under management sent a letter urging Massey Energy shareholders to withhold support from Board of Directors Baxter F. Philips, Richard M. Gabrys, and Dan R. Moore because they have failed to carry out their duties on the Safety, Environmental, and Public Policy Committee. All three current Massey Directors are up for re-election at the May 18 annual meeting of shareholders.

“Since the tragic Upper Big Branch mine (“Upper Big Branch”) explosion on April 5, 2010, federal Mine Safety and Health Administration (“MSHA”) records and media reports have revealed repeated and serious safety violations,” a letter signed by the investor coalition stated.

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Sen. Robert C. Byrd, D-W.Va., wants to hold coal companies accountable for not reporting certain key health-and-safety information to their shareholders.

Byrd introduced an amendment yesterday to the huge Wall Street accountability bill (the Restoring American Financial Stability Act) as his first legislative response to the deaths  of 29 miners in an April 5 explosion at Massey Energy’s Upper Big Branch Mine in Raleigh County, W.Va.

In a statement this morning, Sen. Byrd said:

Investors ought to know if a company is jeopardizing its workforce in order to maximize its profits.  In addition, failure to disclose these adverse safety or health conditions could have a significant financial impact on investors, especially if there is a halt in operations because a company failed in its obligation to protect its workers.

As we seek to make Wall Street more transparent and accountable to investors and Main Street America, I believe it is imperative that workers, investors and the general public receive a more complete and consistent analysis of whether the companies in which they have invested their funds are operating in a safe and healthy manner. Many companies maintain commendable health and safety records, and also disclose those records.  Unfortunately, not all companies maintain such good records.  Inconsistent disclosure in the past has made it hard to separate the wheat from the chaff.

Joining Sen. Byrd to co-sponsor the amendment was Sen. Jay Rockefeller, D-W.Va., who said today:

By disclosing important mine safety information to shareholders, it’s a win for companies doing a good job, and a much-needed alert for companies who are not. Currently, there is no requirement to publicly disclose safety records, which has allowed companies to operate without critical checks and balances. West Virginia suffered a terrible loss recently at the Upper Big Branch mine and we owe it to our miners and their families to do more to make mine safety a top priority.

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Shareholder fight against Blankenship heats up

This just in:

The CtW Investment Group presented today a in-depth analysis to shareholders of Massey Energy Company (NYSE:MEE), making the case to vote against the three directors up for election at the mining company’s May 18 annual meeting, the first meeting of shareholders since the tragic April 5 explosion at Massey’s Upper Big Branch mine in West Virginia, in which 29 miners lost their lives. CtW began presentations to institutional investors and proxy advisors, arguing for the removal of three directors, Richard M. Gabrys, Dan R. Moore and Baxter F. Phillips, Jr. CtW charges that:

* The mine blast that killed 29 miners and destroyed $1.1 billion in shareholder value was preventable and occurred at a mine with an alarming record of serious violations.

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Massey board member resigns

At least one Massey Energy board of directors member, Lady Barbara Thomas Judge, has resigned in the wake of the April 5 disaster that killed 29 workers at Massey’s Upper Big Branch M ine in Raleigh County, W.Va.

Massey gave no explanation for the move when it announced it in a filing with the U.S. Securities and Exchange Commission.

Interestingly, Lady Judge was not among those board members named as defendants last week in a shareholder derivative lawsuit against Massey’s governing board and top executives.

Massey Energy CEO Don Blankenship’s pay

Mine Explosion

The Associated Press put out a story about Massey Energy CEO Don Blankenship’s 2009 compensation the other day, reporting:

Total compensation for the head of Massey Energy Co. fell 12.3 percent last year as the coal mining company coped with sluggish demand in wake of the recession, according to an Associated Press analysis of a regulatory filing.

Don Blankenship, chairman and CEO, earned $17.3 million in compensation last year, compared with $19.7 million in 2008. Massey owns the West Virginia mine where an explosion earlier this month killed 29 miners in the nation’s worst coal mining disaster in decades.

The story continued:

The bulk of Blankenship’s 2009 compensation came in a performance award of $11.5 million, nearly double the $6 million he earned in 2008.

Blankenship received $933,369 in salary, down 6.6 percent, as he and other executives took a pay cut because of difficult business conditions. He got a bonus of $300,000.

He received stock awards that Massey valued at $3.9 million when awarded and $609,875 in compensation for such perks as aircraft travel, cost of housing provided by the company, 401k matching contribution and insurance.

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Massey Energy to buy Cumberland Resources

Massey Energy announced earlier today that it plans to buy Cumberland Resources and its affiliate companies.

According to a Massey news release, the deal is worth $960 million and includes 416 million tons of coal reserves. According to the release:

Based in Abingdon, Virginia, Cumberland operates primarily underground coal mines in Southwestern Virginia and Eastern Kentucky. Its assets include an estimated 416 million tons of contiguous coal reserves, a preparation plant in Kentucky served by the CSX railroad and a preparation plant in Virginia served by the Norfolk Southern railroad. Of the estimated reserves, Massey believes more than half (216 million tons) have metallurgical coal qualities.

Cumberland’s existing operations currently produce both steam and metallurgical quality coals. Approximately 4.8 million tons of its current annual production is of metallurgical quality of which 800,000 tons are currently being sold into the metallurgical coal market. Massey expects to be able to produce approximately 5.0 million tons of metallurgical quality coal annually with the existing Cumberland assets. Massey does not expect any additional development capital would be required to reach this production target.

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CONSOL to buy Dominion’s drilling business

The big news this morning in the coal business is that CONSOL Energy, the Pittsburgh-based coal giant, is buying the drilling operations of Dominion Resources Inc. for nearly $3.5 billion.

CONSOL’s press release is here, and we’ve got the AP story on the Gazette Web site here.

There’s more coverage from The Financial Times, the Pittsburgh Tribune-Review, and The Wall Street Journal.

The CONSOL press release describes the impact of this deal:

The acquisition of Dominion’s E&P business, one of the oldest and most active drillers in Pennsylvania and West Virginia, complements CONSOL Energy’s existing natural gas business which is operated through CNX Gas, its 83% owned subsidiary. As a result of the acquisition, on a pro forma basis, CONSOL Energy will be the largest, and among the fastest growing and lowest cost producers of natural gas in the Appalachian basin. Importantly, the acquisition will give CONSOL Energy a leading position in the strategic Marcellus Shale fairway by tripling its development assets to approximately 750,000 acres with the addition of Dominion’s approximately 500,000 Marcellus Shale acres in Pennsylvania and West Virginia.

The acquisition increases CONSOL Energy’s total proved gas reserves by more than 50 percent from 1.9 trillion cubic feet to approximately 3 trillion cubic feet and doubles its potential gas resource base to approximately 41 trillion cubic feet. CONSOL Energy will acquire a total of 1.46 million oil and gas acres from Dominion along with over 9,000 producing wells that are expected to produce more than 41 Bcfe in 2010, approximately 27 Bcfe of which will be imputed to CONSOL Energy between May 1, 2010 and the end of the year assuming an April 30, 2010 closing. Upon completion of the transaction, CONSOL Energy’s natural gas business is expected to account for as much as 35 percent of CONSOL Energy’s total revenue.



Federal No. 2 Mine shut down again

Patriot Coal Co. said late Friday that it had closed its Federal No. 2 Mine in north-central West Virginia again because of bad gas readings in a sealed area of the mine.

In a news release, the company said:

Patriot Coal Corporation today reported that it has temporarily suspended active mining operations at the Federal No. 2 mine near Fairview, West Virginia. Mining operations ceased after one measurement in an abandoned area of the mine was found to be out of compliance during routine testing in accordance with the mine’s ventilation plan. As a result, the Company is making further refinements to its ventilation plan to address these conditions. The Company intends to review these refinements with the U.S. Department of Labor, Mine Safety & Health Administration as soon as possible in order to resume production at the mine.

Mine managers at Federal No. 2 are the subject of an ongoing federal criminal investigation into allegations of faked methane tests inside sealed areas, and complaints from one foreman that he was forced to ignore explosive methane readings in sealed areas.



WVDEP approves Mingo coal-to-gas plant

The Manchin administration today approved an air pollution permit for the Trans-Gas Development coal-to-liquids plant proposed for Mingo County, W.Va.

Officials from the WVDEP’s Division of Air Quality approved the permit and issued a Final Engineering Determination combined with a response to public comments.

As we’ve discussed on Coal Tattoo before, coal-to-liquids technology will generate twice the greenhouse gas emissions of standard gasoline, unless the production plants are equipped with carbon capture technology — which the Trans-Gas facility isn’t.

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CONSOL Energy might not be too keen on meeting water quality standards at its operations along Dunkard Creek in north-central West Virginia, but this “green” news about the Pittsburgh-based coal giant showed up in my e-mail inbox this morning:

CONSOL Energy Inc.’s  headquarters, located in Southpointe near Canonsburg, Pa., has become the first building in the business complex to be LEED (Leadership in Energy and Environmental Design) certified. Known as CNX Center, the 309,000 square-foot building was designed to be energy-efficient and compatible with the environment by including multiple features required for the LEED certification, such as public transportation stops close to the building, bicycle stalls for employees, an exercise facility and showers.

According to a press release from CONSOL:

During construction, local materials (obtained within a 500-mile radius), low chemical emitting paints, adhesives and carpet, and wood certified to Forest Stewardship Council (FSC) standards were utilized. The project team also recycled more than 75 percent of all waste, diverting it from the landfill.

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Blankenship nets $3.8 million in Massey stock deal

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Gazette photo by Chip Ellis

Massey Energy CEO Don Blankenship pocketed an estimated $3.8 million earlier this week buying 200,000 shares of Massey stock and then turning around and selling it.

The basics of the deals — which took placed last Friday and this Monday — were outlined in a Massey news release, with more details available in the actual disclosures filed with the U.S. Securities and Exchange Commission.

Blankenship bought stock through options granted to him as part of his 2008-2009 contract with Massey. Under the options, Blankenship paid $19.50 for each share. He then sold them for an average price of $38.74 — in other words, he roughly doubled his money.

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Huge news on the utility front this morning, with the announcement that Ohio-based First Energy is buying Allegheny Energy.

The news release is posted here, and The Associated Press has the basic details of the deal:

Utility company FirstEnergy said Thursday that it is buying rival Allegheny Energy for about $4.7 billion in stock in a deal that will create one of the nation’s largest power companies with customers from Ohio to New York.

The combined company will have about $16 billion in annual revenue and $1.4 billion in profit and serve more than 6 million customers in Pennsylvania, Ohio, Maryland, New Jersey, New York, Virginia and West Virginia.

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