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W.Va. lawmakers aim to help coal in closing days of session

As the West Virginia legislature zeroes in on its final day in this year's session, lawmakers are still aiming to offer a boost to coal miners in the state.

The legislative body will adjourn at midnight on April 8 after 60 days in session, though a special session specifically for completing work on the state's budget is planned. The coal industry in the state stands to benefit from bills moving forward that could offer severance tax relief or protect them from environmental lawsuits stemming from water pollution.

Moderating the coal bill

In its original form, Senate Bill 687 would have largely stripped state mining officials of their role as enforcement agents in favor of a compliance-assistance approach. After the bill received national attention and criticism, its lead sponsor, Sen. Randy Smith, R-Tucker, pulled back on the legislation, suggesting that he introduced the controversial measure to bring parties to the table.

"It rolls back decades of mine safety law and regulation and will put every miner in West Virginia at greater risk," United Mine Workers of America spokesman Phil Smith said in a statement to S&P Global Market Intelligence when the first version was introduced.

The new version of the bill takes out language drastically changing the mine safety system in West Virginia in favor of smaller changes such as consolidating assorted boards that make decisions on mine safety.

"We want the coal industry to be able to compete in a free market for energy and to put artificial barriers in front of any of these energy producing sectors whether it be coal, gas or whatever, because you are sort of predisposed to wanting to see the coal industry decline — that is what has happened," West Virginia Senate President Mitch Carmichael, R-Jackson, said in a recent interview. "They put these different regulatory schemes in place in order to exacerbate the decline of the coal industry. We are removing those barriers that are just nuisance issues and trying to allow the coal industry to compete in a free market environment to provide energy resources."

Carmichael said he thinks Smith, who could not be reached for comment on the legislation, did a "great job" in conferring with industry and labor to produce a bill that would work for both parties.

"I think the industry, and rightly so, puts forth one position that is later moderated," Carmichael said. "That was the case here."

Carmichael added that the notion of shifting West Virginia's inspectors from enforcers to compliance partners could "absolutely" be revisited.

Protecting coal from pollution suits

A pro-coal provision relating to state water pollution laws survived the bill's travel through the legislature. The provision strikes language that requires the state Department of Environmental Protection to measure compliance with water pollution standards by determining a stream "supports a balanced aquatic community that is diverse in species composition."

During a West Virginia House Energy Committee hearing, Del. Bill Hamilton, R-Upshur, sought an amendment that would reinstate that language. He said it "just puts the little bugs back in the water so the trout have something to eat," but his amendment was shot down.

At the same hearing, West Virginia Coal Association Vice President Jason Bostic claimed the coal industry is the only sector in the state conducting both whole effluent toxicity testing and monitoring for in-stream insects to assess water pollution effects. He said that without promulgation of a rule and further action of the legislature down the road, he does not anticipate that to change. What the bill would do, he said, would shield the coal industry from federal judges interpreting state law in favor of environmentalists.

"We firmly believe if the legislature doesn't act to take this language out, that we're going to continue to be subjected to lawsuits in federal court, the key word being federal court, not state court, where a federal judge gets to read into that language laying there before you that proposes to be stricken a conductivity water quality standard," Bostic said. "This body, nor EPA, has ever enacted a conductivity water quality standard."

Bostic said there were about 10 cases, four that have already seen a verdict, in which environmental groups have challenged coal operators on a water conductivity standard. Because the court has sided with environmentalists on the standard, settlements for the suits — which Bostic called an "extortion factor" beyond remediation implementation costs — have been relatively high.

For example, Judge Robert Chambers, with the U.S. Southern District Court of West Virginia, concluded in early 2015 that there were significant levels of conductivity in waters below a CONSOL Energy Inc. mining operation. The judge wrote that science backed up the notion the higher levels of conductivity ran afoul of the purpose of water quality standards designed to protect downstream waters. Issues with conductivity have spawned a steep cost for other operators including Alpha Natural Resources Inc., which settled a lawsuit for $7.5 million in part to keep environmental groups from opposing its bankruptcy plan in court.

Tax relief

Lawmakers are also hoping to help out the coal industry by reducing its severance tax burden as coal markets begins to show signs of at least a mild recovery or stabilization. Though the state budget is in a "fairly tight spot" with the governor's budget proposal presenting a $500 million shortfall, the Republican-led legislature is moving forward with tax cuts for the industry.

"I think there's a good case to be made when the industry is starting to move up and actually have some growth in it, that's a better time to cut these taxes and help accelerate that growth. That's kind of where the severance tax came into this tax reform," said Sen. Robert Karnes, chairman of the Select Committee on Tax Reform. "If you have to pay the severance tax, that makes it slightly less competitive than another state like Ohio that has a lower severance tax or Pennsylvania that has no severance tax at all. It just helps make sure we get to participate in a rebound in the coal industry that already happening to some degree and give our in-state operators a better competitive advantage."

Robert Murray, CEO of Murray Energy Corp., an Ohio-based coal producer with longwall operations in West Virginia, told S&P Global Market Intelligence "we are in the third year" of trying to get the severance tax reduced.

"It's absolutely needed. West Virginia coal can not compete with coal from other states and with natural gas," Murray said. "Past governors and administrators of West Virginia balanced the state's budget on the backs of coal miners and those coal miners are 50% laid off in West Virginia now and that tax helped lay them off."

West Virginia Gov. Jim Justice, a coal company owner, proposed a tiered severance tax that would change the tax percentage based on sales price. However, Carmichael said the industry had been hurting too much for too long, so Senate leadership instead is working to reduce the severance tax from 5% to 2.5% over the next three to four years, which he said will make West Virginia "so much more competitive in the market."