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Coal pleased by Trump order, but skepticism on comeback remains

The coal industry is applauding sweeping changes to U.S. energy policy that the sector hopes will allow President Donald Trump to unwind the regulatory restraints of the Obama administration, though its exact benefits are unclear.

A March 28 executive order from the White House directs the U.S. EPA to begin rescinding its Clean Power Plan, orders a moratorium on federal coal leasing lifted and takes down other regulations. A senior White House official told reporters March 27 that Trump "made a pledge to the coal industry and he's going to do whatever he can to help those workers."

While estimates have varied about much impact the Clean Power Plan would have, the U.S. Energy Information Administration projected in early 2015 that coal production would drop 15% to 21% compared to baseline projections by 2020, and by between 16% and 38% by 2040, as a result of the rule. The EPA's own regulatory impact analysis estimated 10,900 to 14,300 job-years lost in the coal extraction industry between 2016 and 2020, with as many as 18,000 job-years lost between 2026 and 2030 compared to the agency's base case.

Murray Energy Corp., the largest private-sector coal company in the U.S., issued a statement saying the employees, management and ownership were "extremely pleased" with the announcement of the executive order.

"President Trump's Executive Order is particularly helpful to our citizens on fixed incomes who would not have been able to pay their electric bills, and manufacturers whose products must compete in the global marketplace," said Murray Energy Chairman, President and CEO Robert Murray. "Further, it will preserve the jobs and family livelihoods of thousands of coal miners, the jobs and family livelihoods that depend on them, and low-cost electricity for all Americans."

While there is optimism that Trump's actions will prevent further deterioration of the coal industry, Murray has said repeatedly that there is little room for the coal industry to recover to prior levels. In an interview the week before the executive order was officially announced, Murray said he does not foresee a comeback for the industry in terms of production or jobs.

"I see no fundamentals that tell me that the markets are going to be any better in 2017, 2018 than what they have been," Murray said. "They'll be flat or slightly worse."

Ohio Coal Association President Christian Palich said there is "a much brighter future for the coal industry as this administration continues to systematically end the war on coal." The Wyoming Mining Association's executive director, Travis Deti, also cheered the executive action, calling the climate agenda of the Obama administration "ill-advised and politically motivated."

Arch Coal Inc., which operates one of the largest coal mines in the country in Wyoming and recently completed a bankruptcy reorganization, applauded the president for dispensing "overly aggressive regulations."

"The Clean Power Plan threatened enormous harm to the U.S. economy while offering little if any environmental or climate benefits," Arch Coal wrote in a statement. "We continue to believe that technology development holds the key to addressing climate concerns."

Economics trumping politics

The action could serve as a market signal alerting investors that at least one of the coal sector's many headwinds is relenting.

However, Andy Roberts, research director for global thermal coal markets at consultancy group Wood Mackenzie, told S&P Global Market Intelligence that, optimistically, Trump's action may "help coal a little bit." He said that while nixing a moratorium on coal leasing could help western coal producers with their planning, and climate policy reversal might extend a few coal plants' lives by a few extra years, ultimately Trump can "nibble at the edges" but not change the underlying economics of coal versus its many forms of competition, including natural gas and renewable energy.

"It's interesting, what he's doing. It kind of upsets the apple cart, but I don't think it has an immediate impact and it doesn't really change the equation that much," Roberts said. "The thing is, it doesn't change the situation we have in place right now. ... But the message is still there, right? He promised to help coal and I think he's doing everything that he can. Those that build power plants, recognize the business cycle and the payback cycle for these massive investments surely extends beyond a one- or two-term presidency."

NiSource Inc., for example, is not planning to change its generation strategy based on the order. Nick Meyer, director of external communications for NiSource subsidiary NIPSCO, said the company's current strategy benefits customers and the environment while providing "affordable, clean energy while maintaining flexibility for future technology and market changes."

"No changes are anticipated in our recently announced plans to retire 50% of our coal-fired electric generation by the end of 2023, or our plans to make the necessary investments to comply with the previously enacted Effluent Limit Guidelines and Coal Combustion Residual rules," Meyer told S&P Global Market Intelligence. "Our decisions were driven primarily by natural gas costs, market changes and an aging coal fleet."

Salt River Project spokesman Scott Harelson suggested to S&P that news of the executive order would not be a motivating factor as the company considers closing its 2,250-MW coal-fired Navajo plant.

"Economics (primarily the cost of natural gas compared to coal generation), not regulatory issues, continues to be the driver of decisions being made relative to the Navajo Generating Station," Harelson said.

The sentiment matches that of a broad range of utilities that told S&P in November 2016 that the election of Trump had not fundamentally altered their planning strategy for their coal fleets.