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Blackjewel's PRB mines see output drop; PacifiCorp unit retirements to hurt West

Blackjewel LLC's two Powder River Basin coal mines delivered some fuel even after the company sent workers home and closed the gates, while other producers helped serve some of the mines' utility customers, according to a recent S&P Global Market Intelligence analysis.

Federal fuel contract data for July showed that coal delivered from the Belle Ayr and Eagle Butte mines dropped 75.9% from June to 562,074 tons.

"Initially, the supply disruption was addressed solely by shifting coal supplies among or around our coal-fired generation fleet to backfill for any missed Blackjewel/Contura train loadings," Scott Reigstad, a senior communications partner with Alliant Energy Corp., said in September. "As the situation continued, we have been supplementing shifted supplies with spot purchases from other suppliers."

Court documents filed recently as part of Blackjewel's bankruptcy proceedings also showed that the federal government was investigating the debtor for potential violations of the False Claims Act and had issued a subpoena prior to the start of its bankruptcy proceedings. The act holds entities liable when they submit false claims to the government.

A law professor said it would likely be very difficult for the government to get its money back given Blackjewel's asset sale.

"What it suggests is that Blackjewel for a long time was effectively insolvent because it couldn't or wouldn't pay money it owed to the government such that the government felt it had a claim against Blackjewel for fraud," said Joshua Macey, visiting assistant professor at Cornell Law School.

Last week, the debtor also requested court approval to transfer its remaining eastern mining permits to an FM Coal LLC affiliate to ensure the sale of its western assets. Eagle Specialty Materials, an affiliate of FM Coal, must obtain replacement bonding to guarantee obligations on the Powder River Basin mines. Two companies will provide the bonding if an affiliate of Eagle Specialty's corporate parent accepts a transfer of the eastern permits and reclamation obligations. The plan involves transferring 135 of its remaining eastern mining permits and all associated reclamation liabilities to an FM Coal affiliate.

There may be more developments for another distressed coal miner this week. Murray Energy Corp.'s forbearance period to work with lenders after failing to make amortization and interest payments ends Oct. 14, so it will fall to the coal producer to show how it intends to handle its balance sheet. Missed payments have forebode bankruptcy protection filings in recent years, but Murray said in a release earlier this month that the forbearance period would give it time to discuss strengthening its business and capital structure with lenders.

Western coal producers may also soon take a hit. Experts said PacifiCorp's plan to retire nearly 2,800 MW of coal-fired generation by 2030 in favor of renewable energy sources and battery storage could be especially detrimental to rural communities, including some in Colorado and Wyoming, where an affected coal mine may not have another customer. But the amount of coal generation going offline does not nearly amount to the tonnage shipped out of Powder River Basin, said Robert Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming.

"Renewables, wind, solar and even storage have gotten to the point where even under a regulated utility, you can't ignore them anymore," Godby said.

Across the coal sector, the U.S. Energy Information Administration is forecasting a 17% decline in fourth-quarter coal production year over year. However, the administration increased its recent 2019 output projection from last month's forecast.

On the regulatory front, coal producers mining on federal lands will be protected from an Obama-era valuation rule as litigation from the fossil fuel industry proceeds. A federal court vacated the Trump administration's repeal of the Obama administration's rule earlier this year, and the industry sought protection from having to comply with the rule before their litigation against it moves forward. While a court granted coal producers an injunction, it denied one for oil and gas producers.

Upcoming events

Coaltrans: The World Coal Leaders Network conference will take place Oct. 20-22 in Lisbon.

The Future of Mining Americas: The mining conference will run from Oct. 21-22 in Denver.

MetCoke World Summit: The summit will be held from Nov. 5-7 in Nashville.