Tag Archives: Peabody Coal

Coal is Bankrupt: Who’s Left Holding the Bag?

The American coal industry has collapsed. This is not hyperbole.

In the last few years, at least 28 coal companies have gone bankrupt and 264 mines have closed. The suffering extends from the smallest companies to the behemoths. Those that haven’t gone bankrupt are trading at small fractions of their values of just five years ago, when the U.S. Coal Sector Index stood at $481. On Friday, the index closed below $32, a loss of more than 93 percent in value.

Peabody lost almost all its value over five years before bankruptcy

Peabody lost almost all its value over five years before filing bankruptcy

And last week, the largest US coal producer joined the march into bankruptcy court. Peabody Energy, the St. Louis-based coal giant cited “a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas and ongoing regulatory challenges,” as the reasons for its bankruptcy filing. Peabody joins Arch CoalAlpha Natural Resources, Walter Energy and Patriot Coal among American coal giants that have filed for bankruptcy in recent months.

In 2009, Peabody’s stock traded at $718 per share. Today, you can pick up a share for 73 cents – a loss of 99.9 percent. Too bad for shareholders. Looks like they’ve lost a bundle. But who else is losing? And how did this all happen?

It isn’t the “war on coal”

Did you notice Peabody’s bankruptcy statement? They blamed the drop in coal prices, weakness in the Chinese economy and too much cheap natural gas. Oh, and yes, they threw in “ongoing regulatory challenges” as a fourth culprit – but only after citing the massive structural changes affecting the coal industry. Here’s the most obvious fact: Natural gas, a cleaner substitute for coal, is very, very cheap. Back in 2008, natural gas ticked above $12 per thousand Btu’s (MMBtu). But in Chicago last week, traders bought and sold gas at $1.92 per MMBtu, a small fraction of the price seven years ago. At these prices, almost nobody is building new coal plants when they could generate electricity with gas, solar or wind.

Coal Moratorium

Bankrupt coal companies have left behind enormous reclamation and cleanup liabilities

Sure, you’ll hear candidates for Congress complaining about Obama’s climate initiatives, or EPA regulations. True enough, in the long run, everyone knows that coal will have to start paying its health and environmental costs.

But the politicians seldom mention this fact: The industry is going belly-up BEFORE any of the Administration’s regulatory actions have taken place. The EPA enacted rules a few years ago to make sure coal plants didn’t emit too much mercury pollution that poisons children; but the Supreme Court blocked the rules last year. And the hotly-debated Clean Power Plan, the centerpiece of Obama’s climate program, is also on ice, thanks again to the Supreme Court. Even if the EPA gets the green light, no state will have to submit any plans before 2018.

And yet, the coal industry has already fled en masse to the safety of bankruptcy, long before government action will force them to clean up their act.

Then what happened to these guys?

We don’t minimize the collapse of coal and gas prices worldwide, and the virtual disappearance of Chinese demand. But there’s so much more. First, virtually all the big coal miners layered on mountains of debt to finance enormous acquisitions in recent years. Alpha Natural Resources bought rival Massey Energy for $7 billion. Arch Coal bought International Coal for $3.4 billion. Peabody paid $5.1 billion for MacArthur Coal. And Walter Energy bought Western Coal for $3.3 billion. And what did they get from the feeding frenzy? Lots of coal reserves that few people really want these days. But the debts are coming due, and they simply can’t pay.

Second, the coal industry faces structural changes that have sent bankers and investors packing. The sustained glut of natural gas has encouraged utilities to build gas-fired power plants, a move that locks in the natural gas advantage over coal. In 2013, for example, natural gas represented more than 50 percent of new power generating capacity in the United States. Coal accounted for just 11 percent, putting it a distant third, behind solar (22 percent) and only slightly ahead of wind (8 percent).

Natural gas prices continue to fall, undermining coal markets

Natural gas prices continue to fall, undermining coal markets

And even though coal still has the lion’s share of overall electric generating capacity, U.S. coal-fired power plants are aging, and many are nearing the end of their useful lives. Without new plants, coal demand is destined to plummet. And there are very few new plants.

Third, these changes pale in comparison to the sea change in public thinking. Whether it’s mercury, or greenhouse gases, or sulfur oxides or acid runoff, the American public is waking up to the reality that coal pollution is too expensive for the public to bear in the name of private profits. Whether or not the Clean Power Plan or EPA mercury regulations survive in their current form, no serious observer can imagine a future in which coal plants pollute the world and jeopardize its climate systems, all for the sake of their own profits. In fact, the whole world has confirmed this reality by agreeing to the terms of the Paris Treaty, under which every country will make substantial cuts in climate-warming emissions. Coal, everywhere, will have to remain in the ground.

Uber-financier Goldman Sachs sums up these changes in a brilliant nutshell. They declared in January that it’s time to slowly ease coal out of the energy mix, with a friendly pat on the head for all the good it did for the U.S. economy. “Just as a worker celebrating their 65th birthday can settle into a more sedate lifestyle while they look back on past achievements,” the report noted, “we argue that thermal coal has reached its retirement age.”

So, who picks up the tab?

Bankruptcy is not death. Companies don’t file under Chapter 11 as some sort of final act before breathing their last. They use the courts to gain relief from their obligations to shareholders, creditors, employees, retirees and the public. They can’t afford to pay everything they owe, so the court determines who loses, and by how much. In theory, the rehabilitated companies emerge with a new lease on life. They can’t pay, so others absorb the cost.

In the case of bankrupt coal, who pays?

Well, for starters, you do. Not you alone, mind you. In West Virginia, 120,000 retired miners and their families could lose their pensions and health care – for many their only source of income. But you’re caught in the mix as well. That’s because it costs enormous amounts to clean up the toxic mess that coal mining leaves behind. You’d think that Federal and state governments would compel coal companies to reclaim their strip mines and shattered mountains as they go, but it doesn’t happen that way. In Montana, North Dakota and Wyoming, there are 450 square miles of land torn up by mining; but only 10 percent has been reclaimed.

This means that the coal companies have put off for another day the cost of reclamation. For bankrupt Peabody, the cost is estimated at $1.4 billion. For bankrupt Arch and Alpha, it’s $485 million and $640 million, respectively. And in bankruptcy, they will shed these liabilities for pennies on the dollar. These abandoned wastes cannot be left alone. They’re ugly, yes. But they’re also perpetual sources of water pollution, slowly leaking acidic and otherwise toxic wastes into streams and groundwater supplies.

Moonscapes left behind by mountaintop removal cost billions to reclaim

Moonscapes left behind by mountaintop removal coal mining cost billions to clean up

And so you will pay, as a federal and state taxpayer. For these three companies alone, your share is about $7. Another $7 for your spouse, your mom, each of your kids, your neighbors. Everyone in the country gets to chip in $7 to clean up the mess left behind by just three coal companies. Did I mention that 28 of them are in bankruptcy?

Now, you and I may think that this is scandalous. But actually, this is standard operating procedure for the coal industry. In the best of times, the U.S. coal industry leaves enormous costs for everyone else to pick up – sometimes called “external costs.” These include things like respiratory diseases, toxic mercury levels, ocean acidification, climate-altering greenhouse gas concentrations, and the effects of drought and flooding.

Until 2010, we didn’t really know the scale of these costs. That’s when the U.S. National Academy of Sciences produced a study called The Hidden Cost of Energy: Unpriced Consequences of Energy Production and Use. Its findings were shocking. Coal burned in a single year by U.S. power plants costs everyone else on the planet another $200 to 300 billion in “external costs.” That’s billions, with a “B”. And it amounts to a tax of about $30-40 levied on every human on Earth. Only for U.S. coal. Only for one single year.

So if you’re following the news, watch carefully in the year ahead as the American coal industry winds its way through bankruptcy. When it’s over, you and I will be a bit poorer. But until we summon the resolve to leave coal unburned, all of us will continue to bear enormous external costs, arising not only from coal’s nominal “failure,” but from their normal levels of success.

Isn’t it time we get to work on ways to leave it in the ground?

How We Judge Dennis Hastert

“I am not ashamed of the gospel, because it is the power of salvation to everyone who believes.”

The visiting pastor at our church last Sunday preached on this text from St. Paul’s letter to the Romans. EVERYONE, he stressed. The gospel is for everyone. It’s for criminals, for drug abusers, for people you and I probably don’t think are worthy of it. And fresh off of reading the morning news, I made a mental addition to the list: The gospel is for accused sexual predators, like the disgraced former Speaker of the U.S. House of Representatives, Dennis Hastert.

Once second in line to the American Presidency, Hastert is now an outcast. The longest-serving Republican Speaker ever to hold that position is now set to become little more than a punchline on late-night TV comedies. The indictment against him outlines a lurid tale of millions of dollars allegedly promised – and partially delivered – to the alleged victim of Hastert’s molestation, from long ago when he was a high school teacher and wrestling coach in Illinois – hush money to keep his misdeeds from ever seeing the light of day.

And to sweeten the irony for millions of voyeurs, Hastert (called Denny by all his powerful friends), was a poster child for evangelical Christian politics. His name was emblazoned on a building at Wheaton College, arguably America’s premier Evangelical school of higher learning. He enjoyed the prestige of a seat on one of Wheaton’s boards. He sported a 100% political rating from the Christian Coalition, with all the expected stances on gays, abortion and sex education.

And Wheaton College’s Hastert Center (officially the J. Dennis Hastert Center for Economics, Government & Public Policy) listed as its core mission the advancement of “the redeeming effects of the Christian worldview on the practice of business, government and politics.”

The former J. Dennis Hastert Center at Wheaton College

The former J. Dennis Hastert Center at Wheaton College

So you can imagine the conundrum faced by Wheaton’s administrators when the dreadful news exploded into the headlines last week. How could a name symbolizing homosexual abuse adorn a college building dedicated to the “Christian worldview” of government?

Not surprisingly, Wheaton announced that it was “saddened and shocked.” The language in their press release was pious and measured, including promises “to pray for all involved” who may have been “harmed by any inappropriate behavior.” But if their words were polite, their actions were much more decisive: Hastert was summarily removed from the Hastert Center’s Board of Advisors, and his name was scrubbed from the center as well. It’s now called the Wheaton College Center for Economics, Government, & Public Policy.

So, goodbye Denny. It’s like we never knew you. One day, you’re an Evangelical titan. The next, you’re invisible, forgotten – anathema.

Now, Wheaton and the white American Evangelical world didn’t have much of a choice, did they? But I find it more interesting that nothing else about Hastert’s legacy bothered us, up until now. We were perfectly happy forging alliances with this powerful rainmaker until something salacious hit the newsstands. So, why weren’t we at all troubled at the litany of well-known practices that served as hallmarks of the ex-Speaker’s career? Consider:

The Speaker of Earmarks: As House Speaker, Hastert presided over the era of uncontrolled “earmarks” during the George W. Bush administration, the process by which lawmakers inserted unrelated subsidies and appropriations into important bills, mainly to deliver pork-barrel perks back home, or to reward political donors. The military appropriations bill for the 2000 fiscal year contained 997 earmarks. Under Hastert’s speakership, by 2005, that number had grown to 2,506 earmarks. In 2000, the largest domestic spending bill, which funded labor, health and education programs, had 491 pet projects. By 2005, it had 3,014.

Publicly, everyone hated earmarks. But under Denny, they ran rampant until the $450 million “Bridge to Nowhere” scandal brought down Alaska’s senior senator and (together with a related bribery conviction) shocked the nation into taking action against them.

Corrupt Self-Dealing: One of Hastert’s own earmarks was for $207 million in Federal money to build a new highway in Kendall Country, Illinois. It happened that the new road ran right past about 90 acres of farmland owned by the Speaker himself. Overnight, the land became suitable for a 1,600-home residential development project, netting Hastert an estimated profit of about $4 million within a few months of the earmark’s passage.

Merchants of Death: It’s common for powerful lawmakers to cash in on their influence when out of office by moving a few blocks from the Capitol to join the legion of lobbyists on Washington’s K Street. Hastert became a top player at the firm of Dickstein Schapiro, which showered him with compensation dwarfing his congressional salary for the sake of his connections to those in power. His largest client was Lorillard Tobacco, which was convicted of fraud and racketeering for denying and concealing the links between smoking and cancer, for funding front groups designed to raise doubts about the consensus of medical science, and for handing out free cigarettes to black children to breed a lifetime of addiction.

For Lorillard, Hastert’s job was to get his friends in Congress to expedite approval of candy-flavored tobacco products. Candy-flavored? Oh my goodness.

Merchants of Doubt: At Dickstein Schapiro, Hastert’s other big client was Peabody Coal. The largest privately-owned coal company in the world, Peabody relied on Hastert to persuade Congress that climate change is nothing to worry about. He was dramatically successful. In the Senate, as recently as January 2015, 49 GOP Senators (all but five of them) voted against a nonbinding bill affirming the scientific consensus that human emissions are significant contributors to climate change.

Still, in all this, America’s flagship Evangelical college apparently had no qualms. Presiding over a grab-what-you-can culture of earmarks, including those that fatten your own bank account? Not our business. Rake in consulting fees on behalf of companies that prey on children and the poor? Who are we to judge? Help to block the entire world from acting on a massive environmental problem of global scope? Let’s not touch that controversial topic.

But, fall prey to accusations that you’ve done something sexually immoral? Well that’s easy. Sayonara Denny! We can’t deal with a sinner like you.

Now, it’s not that Christians must never call out immorality, injustice, and every other type of sin. The New Testament prophet John the Baptist screamed at his hearers: “You brood of vipers! Who warned you to flee from the wrath to come?” Terrified and convicted, they begged him: “What then shall we do?”

We might think he would say something about sexual promiscuity, or profanity, or religious observance, but that would be a mistake. Whoever has two shirts, he said, share one with the person who has none. The same goes for food. And you in power, don’t take money from those under your control, even if you have the power.

Is that it? Actually, yes. That’s it.

If John the Baptist (or Jeremiah or Isaiah or Micah) is watching the Hastert saga play out, he might well be upset about lots of things. Of course, if the life of a high-school student in Illinois has been traumatized, the prophet will likely have some choice words for the ex-Speaker. But he’s almost certainly not ignoring all those dollars & cents either. Hastert’s kids may inherit the millions he’s made trading influence for wealth. Your kids will inherit the national debts piled up through all those unsavory appropriations bills. Your kids will subsidize the health costs from his tobacco clients. And your kids will inherit a broken climate system from our persistent inaction on global climate change, the key goal of Hastert’s coal client.

Fellow Christians, I’m not asking that we appoint ourselves to be the judges of men and women. But when we do make judgments, as Wheaton College has been forced to do, maybe we could look hard to assure that those judgments are the same ones we find in sacred scripture.

What shall we do? Maybe the Bible has answers long ignored.