Supreme Court Gives U.S. Coal a Breather Before Next Fight

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Coal Stocks Rise After Supreme Court Rejects Mercury Rule

The coal industry’s Supreme Court win over President Barack Obama may prove just a moral victory.

The U.S. Supreme Court ruled against an Environmental Protection Agency rule that forces utilities to close old coal plants or invest in costly equipment to cap toxic mercury pollution, saying the agency needs to consider the costs associated with the regulations. The decision sends the regulation back to a lower court to decide on its fate.

Coal producers are battling not just government regulators but cheaper natural gas, which in April surpassed it for the first time as the primary source of electricity generation in the U.S. About 30 gigawatts of coal-fired generation has been retired since 2012 in anticipation of the mercury rules, according to Clarkson Platou Securities. Meanwhile, the Obama administration plans to finalize carbon limits this summer that would reduce coal demand at existing power plants.

“It comes too late to save the majority of plants that were affected,” Jeremy Sussman, an analyst at Clarkson, said by phone Monday. “It’s turning more attention to carbon. The carbon rule is much more meaningful.”

The decision to send the regulation back to a lower court leaves open the possibility that the 2011 rule, called the mercury and air toxics regulation, could be left on the books while the agency does the analysis that the high court said it should have done long ago.

Gas accounted for 32 percent of April power generation in the U.S., compared with 30 percent for coal, Energy Information Administration data show.

Record Gas

Production of natural gas is forecast to average a record

78.96 billion cubic feet per day in 2015, even as futures in New York plunged 38 percent in the past year. The front-month contract slipped 1.6 percent to $2.761 per million British thermal units at 9:31 a.m. Tuesday.

Coal has gone in the opposite direction. Output is down 12 percent from a year earlier. Miners shipped just 15.1 million tons of the power-plant fuel in the week ended May 29, the lowest since July 1996.

“This highlights that all of the regulations are secondary to low gas prices,” said Brandon Blossman, a Houston-based analyst for Tudor Pickering Holt & Co. “There’s plenty of gas to go around. It’s kind of hard to compete with that. This is a price war.”

A jump in coal stocks following the Supreme Court ruling wasn’t enough to make up lost ground from the beating they’ve taken this month.

Peabody Energy Corp., the largest U.S. coal producers is down 26 percent in June. Arch Coal Inc. has lost 14 percent and Alpha Natural Resources Inc. has dropped 30 percent.

New Normal

“We’ve already begun a new normal,” said Jim Thompson, a Knoxville, Tennessee-based director of coal for IHS Inc. “A moral victory might be a really good description.”

The Obama administration has set a deadline for this summer to finalize its Clean Power Plan, which calls for reductions in carbon dioxide pollutants of 30 percent by 2030 from 2005 levels to stem climate change.

Under that scenario coal would make up 30 percent of electricity generation by 2030 compared with half in 2007, according to EPA.

“The Unites States coal industry has been absolutely destroyed by regulations of the Obama administration, and the increased utilization of cheap natural gas to generate electricity,” Gary Broadbent, a spokesman for Murray Energy Corp., a producer with mines in Appalachia and the Illinois Basin said in an e-mailed statement. “As long as coal is being utilized, whether in the United States or abroad, we intend to supply it.”

This victory isn’t likely to carry over into a fight over the carbon rule because it’s predicated on a different section of the Clean Air Act, the vehicle EPA uses to regulate pollution, Brandon Barnes and Rob Barnett, analysts at Bloomberg Intelligence, said Monday.

“You could even see the same scenario like we have now, where you win and it doesn’t really change a lot,” IHS’s Thompson said. “A lot of uncertainty has been stacked on coal.”

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