Coal Is Losing Appalachian Stronghold as Trump Fights Back

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  • Natural gas prices have fallen 80%, rivals struggle to compete
  • Producers seek state, federal help to keep industry diverse

Trump Signs Executive Order on Energy Independence

Natural gas already won the battle with coal on America’s Atlantic coast. Now it’s about to move west and take Ohio -- and President Donald Trump’s new rollback of environmental regulations won’t stop the rout.

At least six gas-fired plants are planned in the Ohio River Valley over the next four years. That’s enough to supply more than 4 million homes, and topple coal as the state’s main source of electricity.

Because gas is cleaner, its displacement of coal was cheered by the Obama administration. Still, it was the economics of shale drilling, not the government’s environmental rules, that drove the change. Gas prices have fallen almost 80 percent since mid-2008 as production surged across the country.

That’s what makes it so hard for Trump to bring back mining jobs in states like Ohio where the coal vote helped put him in the White House. It’s one thing to scrap his predecessor’s green agenda, as Trump did today with an executive order that cancels various carbon-cutting policies. Taking on the market is another matter.

“Ohio coal is already feeling the pressure,” said John Bartlett, who helps manage about $2.5 billion of energy and utility stocks at W.H. Reaves & Co. Inc. in Jersey City. “It’s going to be more and more intense as the decade wears on.”

Bartlett remembers when “all the coal in the world went up and down the Ohio River. You used to fly over it in the old days and see tons of barges.”

Last year, coal’s share of power generation in the state fell to about 58 percent, from 86 percent in 2006. Bartlett estimates that by 2021, gas-fired stations in Ohio will be able to produce 20.4 gigawatts -- almost double their current capacity -- while coal will hold steady at 15.4 gigawatts.

Competition from gas was one reason that AES Corp.’s Dayton Power & Light announced in November it will shut two coal plants in Adams County on the Ohio River. With a combined capacity of 3,000 megawatts, they’ve operated for 40 years and employ hundreds of people.

“That got the community fired up,” said Michael Pell, chief executive of First State Bank in the nearby town of Winchester, who’s emerged as a leader of local efforts to resist the closures. He lists the likely effects: the county will lose about 30 percent of its property revenue, and potentially 70 percent of its school budget, and there are no state rules to guarantee the sites will be properly decommissioned and cleaned up.

“Not only will we lose our tax base and jobs, we may lose our water supply,” he said. There’ll be “zombie plants sitting on 5,500 acres that my grandchildren will have to look at for all eternity.” Pell said the community is hoping for some help from the Trump administration, with its emphasis on defending coal. But “we have very little political leverage, either in Ohio or nationally.”

About 250 miles east, in the heart of shale country near the Pennsylvania border, Richard Bereschik is in the opposite situation: he’s contemplating a “windfall.” Privately held Advanced Power wants to build a 1,100-megawatt gas-fired plant near his village of Wellsville -- a sign that gas is replicating the coal industry’s old “mine-to-mouth” strategy by putting generators near the fuel source, to keep transportation costs down.

Bereschik, 64, is Wellsville’s school superintendent, and says he’s watched enrollment fall by almost half as factories shut and families moved away. With the influx of money from the new generator, he plans to bring back arts and music programming, and finally replace the elementary school’s roof. “We’re a very low-wealth district, and for this to happen is just great,” he said.

Even there, there’s a catch. Local officials say that building the plant will create about 500 union jobs -- but the finished facility will only need 20 to 30 people to operate. Meanwhile, two coal-fired plants in the area owned by FirstEnergy Corp. are at risk.

If that happens, “it’s going to turn into a ghost town overnight,” said Mark Allison, an elected official in nearby Yellow Creek Township. “Hopefully Trump comes through.”

Too Reliant?

Ohio and Pennsylvania helped elect Trump, who said the executive order he signed today will bring “an end to the war on coal” and usher in a “new era” for energy and jobs.

But in its budget draft earlier this month, the White House proposed to eliminate the Appalachian Regional Commission, one of the agencies that invests in communities hurt by coal closures.

Wendy Wasserman, a Washington-based spokeswoman for the commission, said Appalachia has lost more than 33,000 coal-mining jobs since 2011, without counting indirect effects such as job losses for truckers, or railway workers, or safety inspectors. She said the commission will continue working to retrain some of those people.

The region learned a lesson from the coal collapse, Wasserman said: “You can’t be reliant on one economy or on one sector.”

Some people think that the dash for gas will leave parts of the U.S. too reliant on that as a power source. Robert Murray is one of them. He has a vested interest: he’s chief executive of Murray Energy Corp., the country’s largest privately held coal miner, with terminals on the banks of the Ohio River and a fleet of barges and towboats to supply power plants.

Unlike coal, gas can’t be stored at the plants, Murray points out. “I’d certainly say they’re overbuilding too much capacity,” he said. “We’ve got to watch where we’re going with that.”

Historically, gas prices have been volatile. The risk is that by the time they swing up again, other producers -- nuclear, as well as coal -- could have been driven out of business.

April gas futures, which expire Wednesday, rose to their highest level since Feb. 10 on the New York Mercantile Exchange.

Toby Shea, senior credit officer at Moody’s Investors Service Inc., said that coal closures in places like Ohio will have a “rippling effect” across markets, pushing already-low electricity prices even lower. It could turn the world’s single biggest competitive power market -- the one operated by PJM Interconnection LLC across 13 states from the mid-Atlantic to the Midwest -- into a “distressed market” where generators struggle to turn a profit, he said.

In Ohio, collapsing prices forced FirstEnergy to book a $9.2 billion charge in February. Its Akron-based neighbor American Electric Power Corp. had a $2.3 billion writedown, and also sold four plants last year. They were performing fine, but “the problem was, what are they going to do next year and 10 years from now,” said Mark McCullough, executive vice-president of its generation unit.

In a cheap-gas world, its rivals are pushing for government aid to survive. Exelon Corp. won nuclear subsidies in Illinois and New York, with other states expected to follow. In Ohio, FirstEnergy is pushing for “legislation that recognizes the value of nuclear power,” spokeswoman Jennifer Young said.

But the same company’s efforts to get coal subsidies in Ohio failed.

Without state or federal support, “it’s a question of how long these coal plants hang around,” said Prajit Ghosh, an analyst at Wood Mackenzie Ltd. “The economics are more and more strained.”

— With assistance by Dave Merrill

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