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Hoping for regulatory certainty, coal offers cautious optimism about Trump

As President-elect Donald Trump's administration takes shape, industry observers are offering cautious optimism about what he can do for coal.

"While the president-elect's plans for short-term regulatory relief are fairly clear, plans for how one makes coal great again are not terribly clear," Cloud Peak Energy Inc.'s Vice President for Government and Public Affairs Richard Reavey said, during the 15th Annual Coal Trading Conference on Dec. 5 and 6.

One of the most significant challenges facing the industry and its allies in Washington is coping with how deeply the previous administration's influence has shaped the country's energy landscape and what opportunities there are for a return of coal.

Reflecting that challenge, representatives from Dominion Generation Corp, Duke Energy Corp. and Dynegy Inc. were all asked in the day's final session how many coal-fired power plants they expected to be built in the next 10 or 20 years.

"Zero," they all answered.

Despite such bearishness, some energy advocates remain bullish on Trump's incoming administration. "Trump may not have coal back to the place that it was in the early '90s or the early 2000s, but folks need to understand that he can help coal country a lot," said Dan Byers, senior director for policy at the U.S. Chamber of Commerce's Institute for 21st Century Energy.

If Trump eases the pressure the coal industry has faced from the Clean Power Plan, for example, the number of plants that go offline in coming years will decrease greatly, he said.

That scenario became a lot more likely earlier this week, when Trump selected Oklahoma Attorney General Scott Pruitt as his nominee to lead the U.S. EPA. Pruitt has been a leading voice in the ongoing legal battle to take down several key Obama-era environmental regulations, including the CPP and the Clean Water Rule.

While Trump wants to help the coal industry regain market share and unlock more fossil fuel resources in federal areas, Democrats in Congress are gearing up for a fight. U.S. Sens. Edward Markey, D-Mass., and Jeff Merkley, D-Ore., introduced a resolution Dec. 7 that calls for the U.S. to generate 100% of its electricity from renewable energy resources by 2050.

Some energy providers are already moving in that direction. DTE Energy Co., a major Midwestern coal producer, said it is pulling away from coal generation, with no new planned construction of coal plants.

"Last month's election and a new administration taking office in January doesn't change these events or the reality that Michigan and surrounding areas are projected to be in a capacity shortfall as early as 2018," spokesperson Stephanie Beres told S&P Global Market Intelligence.

Before the new administration takes over, though, the current Congress has to take care of unfinished business, including passing a continuing resolution to fund federal agencies through April 28. The CR introduced this week included a four-month extension of union miners' healthcare plans and no help for their underfunded pension plans, far short of what the United Mine Workers of America and Sen. Joe Manchin, D-W.Va., had sought.

UMWA President Cecil Roberts called the proposal "a slap in the face to all 22,000 [miners] who desperately need their health care next month, next year and for the rest of their lives."

In response, Manchin declared he would block all attempts to pass legislation by unanimous consent in the Senate until the healthcare and pension shortfall is addressed.

The sponsor of another piece of mining-related legislation, the Revitalizing the Economy of Coal Communities by Leveraging Local Activities and Investing More Act, or RECLAIM, said it is likely dead for this session. House Appropriations Chairman Hal Rogers, R-Ky., vowed to continue his fight to passing the bill once the new Congress convenes.

The new year also holds promise for Arch Coal Inc. according to Lucas Pipes, an analyst with FBR & Co. Pipes said the company is in a "prime position" to capture the rally in metallurgical coal, as it has about 5.4 million tons of the commodity left to sell in 2017.

However, market observers wonder whether demand growth will step in to sustain high coking coal prices beyond a few quarters. "The big thing to think about with this coking coal price rally is it's not demand driven, and that's a problem," said Doyle Trading Consultants CEO Hans Daniels at the Coal Trading Conference on Dec. 6.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.