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After Trump no-show, Supreme Court fight over Wash. coal exports left to Biden

SNL Image

Coal falls off a conveyor belt as it is prepared for shipping at a mine near Cumberland, Ky., in August 2019.
Source: Scott Olson/Getty Images News via Getty Images

The Trump administration did not offer comment to the U.S. Supreme Court about a bid by certain coal-producing states to reject the legitimacy of Washington state standing in the way of a coal export terminal, leaving an opportunity for a Biden administration-controlled U.S. Justice Department to give an opinion instead.

After the state of Washington denied a water quality permit for the terminal proposed by Millennium Bulk Terminals-Longview LLC Wyoming and Montana filed a petition to the U.S. Supreme Court aimed at rejecting Washington's authority to block the project, citing the Dormant Commerce Clause and the Foreign Commerce Clause under the U.S. Constitution. Millennium is a subsidiary of Lighthouse Resources Inc., which was unable to find a buyer for the port through its Chapter 11 bankruptcy reorganization.

The justices have not decided whether they will hear the full case; a decision requires the support of at least four justices. In October 2020, the Supreme Court invited the acting solicitor of the U.S. Justice Department to comment on whether the case should be heard. The Trump administration's DOJ had not filed anything as of Jan. 21, the Supreme Court docket shows.

Legal observers were bewildered by the lack of comment. Although arguments the two coal states presented ran counter to the thinking of some conservative lawyers about states' rights, former President Donald Trump presented himself as a pro-coal president, and the fight was aligned with his work to address policies deemed anti-fossil fuel.

"It is surprising they didn't file a response," James Coleman, associate professor of law at Southern Methodist University, told S&P Global Market Intelligence. The DOJ views are "very important" to resolving the legal arguments because the case relies on the federal regulation of interstate commerce, Coleman said.

"I think it's fair to say that the Biden administration is unlikely to be supportive of these claims, so they're more likely to say states get to have their own policies, especially policies that might be tied to trying to stop climate change," Coleman said.

The legal arguments could be dividing conservative justices on the court, making it difficult to proceed to oral arguments, according to Ari Peskoe, director of the Electricity Law Initiative at the Harvard Law School Environmental and Energy Law Program. Following the lead of former Associate Justice Antonin Scalia, Associate Justice Clarence Thomas has rarely been willing to recognize the legitimacy of the Dormant Commerce Clause, and newly confirmed Associate Justice Amy Coney Barrett may feel similarly.

"Given that [Amy Coney Barrett] is apparently a Scalia acolyte, the other four conservative justices would have to decide to hear this case for it to move forward," Peskoe said in a Jan. 21 email. "I don't see it happening. My guess — and it's just a guess — is that the Trump DOJ didn't think this case was worth the effort, given the very long odds."

Attorney Jan Hasselman, whose environmental law firm Earthjustice has been working to oppose the coal export terminal, said he hopes that the Biden administration will weigh in and try to stop the case from being heard, though the justices could make a decision before that happens. Hasselman said the DOJ's silence on the issue is "not determinative of the outcome, but it is very significant."

"We would certainly hope that [President Joe Biden] would be weighing in to stand up for the rights of states to have some control over the health and welfare of their citizens," Hasselman told Market Intelligence.

Changing landscape

The coal sector once eyed the proposed export facility as a source of hope for tapping into Asian coal export demand. Now, Lighthouse's own Decker mine in Montana is struggling due to a lack of port access as well as tepid demand from abroad.

"Due to decreased prices in Asia connected to the COVID-19 global pandemic, Decker Coal has experienced a drastic reduction in export sales this year due to an oversupplied market," Lighthouse said in a Jan. 20 court filing. The company noted that Decker suffered operating losses of $3.8 million in 2019 and $7.9 million in 2018.

Prospects for domestic sales are also bleak. Lighthouse reported that its production costs exceed the sales price in the contract with its sole coal purchaser, DTE Electric Co., and that it would begin reclaiming the mine soon, in line with the utility's plans to stop purchasing the company's coal in early 2021.

In mid-December 2020, Lighthouse asked the U.S. Bankruptcy Court for the District of Delaware to allow an expedited sale process to help off-load the coal port, shortly after filing for a Chapter 11 bankruptcy reorganization. The company warned that its cash and collateral would only see it through March 2021.

However, Lighthouse informed the court Dec. 23, 2020, that it received no stalking horse bids on the long-stalled project. The company asked the court to approve a deal transitioning control of the facility to Northwest Alloys Inc., a subsidiary of Pittsburgh-based steelmaker Alcoa Corp. The court approved the agreement, terminating the ground lease associated with the export facility.

Lighthouse filed an additional motion seeking to reject remaining contracts related to the facility, including agreements with Arch Resources Inc. and Cloud Peak Energy Resources LLC for potential coal shipments. Lighthouse said the contracts no longer have any value to the company or Northwest Alloys. The judge has not yet ruled on that motion.

Hasselman said the Trump administration may have stood on the sidelines in the case because of the project's beleaguered financial straits: "This case is so tied to the Millennium project, and the Millennium project is gone."

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