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Archive for the ‘Coal’ Category

Coal mine, early 20th century

Coal mine, early 20th century.

There are mines and there are trenches, but they’re not the same. The so-called war on coal is a great story, but it’s a complete fiction. If there’s a war on steam coal, then there has to be a war on nuclear generation as well because they’re both in the same wholesale electricity market. You don’t have to look far to see Exelon and other nuke operators begging their state legislatures for additional subsidies for their plants. When wholesale electricity market prices are favorable, then coal mines and coal-fired plants (and nukes) extol the survival of the fittest in the Free Market, where only the most efficient competitors survive. But when that market turns on them, all of a sudden “the market is flawed,” and customers are no longer just customers; they’re “stakeholders.”

Be very afraid when anyone in the energy business starts calling you a “stakeholder.” It’s code for “we need you to pay us more money, but our reasons are really bad, so we have to fool you into believing that we’re all in this together.”

Coal mines are not being shuttered by the EPA or Hillary Clinton. The straight-up fact is that shale play natural gas has brought power prices down to levels not seen in years. Allied to this is the continued weak demand in what the feds tell us is our country’s longest (and slowest) economic recovery. The consequence is that low market electricity prices have persisted for an extremely long time.

The mines are being closed, and coal companies are declaring bankruptcy, not because politicians are waging some sort of trench warfare, but simply because of the price of coal, which varies directly with the price of natural gas.

Without doubt, new environmental rules have played a part in reducing coal-fired generation. But if you kick in the door on a house that’s in the process of falling down, don’t expect to be paid for the demolition job. A small decrease in the price of natural gas has a disproportionately large impact on demand for steam coal, and thus on the question of whether to shut a coal-fired station.

There’s no war on coal, and Don Blankenship, contrary to his claim, is not a political prisoner.

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Coal-fired Power

Coal-fired Power

While the Hillary v. Donald Rumble on Monday night garnered all the media attention, the D.C. Circuit Court of Appeals heard a far more substantive discussion the following morning. An en banc panel of ten federal appellate judges heard oral argument on the Obama Administration’s Clean Power Plan.

It was a “hot bench,” with lots of questions from the judges. And while Hillary and The Donald put down their swords after 90 minutes, the oral argument on the CPP went on for more than seven hours.

West Virginia’s Solicitor General opened with an artillery barrage in the putative war on coal. The CPP sets target emission rates for fossil fuel generators such as coal, and prohibits them from operating if they exceed those limits unless they purchase carbon credits from generators whose emissions are below their assigned limits. He argued that the CPP thus forces coal plant owners into an impossible choice: they either subsidize their renewable energy competitors or shut down prematurely. In his view, that would affect not just West Virginia but the nation as a whole. W. Va. and other opponents argued that the Clean Air Act does not allow the EPA to require plant owners to invest in different generation resources.

The question of the scope of the EPA’s authority got a lot of attention. The EPA and other proponents of the plan countered that this type of regulation is already commonplace in the power industry. They argued that the emissions trading contemplated by the CPP would be the least expensive method of pollution control, especially when compared to setting emissions caps for each plant. EPA argued that the Clean Air Act mandates that it devise the best system of reductions for any particular pollution type, and that’s what the CPP does. They pointed to the Supreme Court’s 2007 ruling in Massachusetts v. EPA, which mandates that the agency act to regulate carbon. And, they continued, the high court’s 2011 ruling in AEP v. Connecticut affirmed the EPA’s regulation of carbon, declaring that because climate change damages were within the EPA’s jurisdiciton, individual states could not sue power companies for climate change harms.

Their opponents argued that other language in AEP casts doubt on the scope of that holding.

Other CPP opponents claimed that because CPP requires major changes to the power grid, that the EPA is infringing on states’ rights because each state is responsible for the reliability of its own electric power system. Numerous shut-downs of coal-fired plants that would follow implementation of the CPP would adversely affect grid reliability.

Once again, it comes down to the Third Branch Default Setting that we’ve seen before in litigation interpreting laws that are both complex and unclear. The almost endless adventures of the 8th Circuit Court of Appeals with the Telecommunications Act of 1996, now forgotten like some long-ago war over an equally forgotten issue, comes to mind. Yet the problem is essentially the same. Congress enacts a law, but because of its own inability to agree on what that law should really say, it gets passed with provisions that don’t add up, or are even contradictory. But those problems are down the road, and it’s more important for legislators to get some earned media at the signing ceremony and have some accomplishment to write home to constituents about. Thus it falls the judiciary, sooner or later, to sort things out. C’est la vie, c’est la guerre.

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Soft-diamond Specials waiting to move out

Soft-diamond Specials waiting to move out.

Argument is scheduled for today in bankruptcy court in St. Louis over Peabody Energy’s request for approval of $16,200,000 in executive bonuses for six top executives (In re Peabody Energy Corp., Bankrtcy., E. Dist. Mo.). Peabody, one of a series of coal company insolvencies over the past few years, filed bankruptcy this past April, attributing its difficulties to declining demand overseas, particularly from China, low market prices for coal, and the loss of electricity generation demand to cheaper shale gas. These factors allegedly rendered the company unable to service its $10.1 billion debt load.

The United Mine Workers pension and benefit funds oppose the plan, saying it’s both inappropriate and unfair to pay bonuses to senior executives when employees are losing their jobs.

Peabody Energy counters that the bonuses are essential to turn the world’s largest private-sector coal company around and offer stakeholders the best possible recovery. The company claims that the bonuses are tied to its achievement of certain performance benchmarks through the end of 2017. Reuters reports that the debtor’s unsecured creditors’ committee supports the bonus plan and that the U.S. trustee has not objected.

Though unseen, the ghosts of AIG retention-bonuses-past usually attend these hearings. A debtor proposing such a plan must show that it is based on pay-for-performance and not just an executive retention program.

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Former Massey Energy Co. CEO Don Blankenship

Former Massey Energy Co. CEO Don Blankenship

Huffington Post has a blog entry on Massey Coal that’s worth reading:

Justice — of sorts — was finally delivered as Donald Blankenship, the former Chairman and CEO of Massey Energy, was convicted (with a maximum fine of $250,000 and up to one year in prison) of conspiring to willfully violate mine safety standards at the Upper Branch Mine in West Virginia, where 29 workers died in April 2010. Here’s a blog I wrote about it a few months after the disaster.

Huffington makes the point that the Upper Big Branch mine explosion is much like the 2008 financial crisis because they both have the same root cause: elected officials who should have been creating a regulatory system that protects workers (or investors, or the public) instead created a system whose first priority is to protect the corporations it was meant to watch over.

Read the full Huff Post entry here.

It’s also the same as the BP Deepwater Horizon, whose regulator was the Minerals Management System, or MMS. The MMS was a bureau within the U.S. Department of the Interior (DOI):

MMS’s biggest problem was agency capture. In 2008, MMS was caught in a scandal in which the Department of Interior’s inspector general found that regulators had “inappropriate relationships with industry that could compromise their objectivity.” Those inappropriate relationships allegedly included sharing alcohol at industry functions, using drugs, and sexual relationships between regulators and industry professionals. [17] The inspector general also characterized MMS as dependent on industry’s greater expertise with the technology of deepwater and ultra-deepwater drilling, and thus reliant on industry’s judgment of appropriate safeguards to incorporate in regulations.[18] Essentially, the oil industry’s deep pockets gave it strong leverage over MMS decisions.

Yep. MMS was literally in bed with the company it was supposed to regulate. And as they said on the bridge of the Titanic, that’s just the tip of the iceberg.

From: Changing Direction: How Regulatory Agencies Have Responded to the Deepwater Horizon Oil Spill (Part I of II)

 

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Mine Explosion-Trial

Former Massey Energy CEO Don Blankenship departs the Robert C. Byrd United States Courthouse following the second day of jury deliberation in Charleston, W.Va., Wednesday, Nov. 18, 2015. Blankenship is charged with conspiring to break safety laws at the mine and defraud mine regulators, and with lying to financial regulators and investors about company safety in the years before an explosion killed 29 men at the Upper Big Branch mine in southern West Virginia in 2010. (AP Photo/Walter Scriptunas II)

Earlier this morning a federal court jury in West Virginia convicted Don Blankenship, the former CEO of Massey Coal, of conspiracy in connection with an April 2010 coal mine explosion that killed 29 coal miners more than a thousand feet underground. The explosion in Massey’s Upper Big Branch Mine was the worst mine explosion in the U.S. since 1970, when 38 miners were killed in an explosion in a coal mine in Kentucky.

Months after the explosion,  Blankenship stated to the media that

What we’re trying to do is actually avoid the focus on culpability and figure out what happened…. The focus ought to be on the physics, the chemistry, the math, the science … and figure out what we could do to prevent it from happening again, rather than try and point fingers.

(Massey CEO: Explosion probe needs to be completed, Associated Press State & Local Wire, November 20, 2010.)

Blankenship took the position that changes in the mine’s ventilation plan ordered by the federal Mine Health and Safety Administration contributed to the blast, and said a sudden release of natural gas flooded the mine and sparked the explosion. (Id.)

In other words, according to Blankenship, one principle that we must exclude at the outset is that of accountability.

The 2006 Mine Improvement and New Emergency Response Act boosted the number of mine inspectors, enhanced fines and imposed stricter safety regulations for the nation’s coal mines. However, the mining companies adopted a strategy of contesting every citation issued by the inspectors, and Massey Coal was the leader in clogging the Federal Mine Safety and Health Review Commission docket. In April 2010, the FMSHRC had 46,822 contested violation proceedings on its docket. Of that number, Massey was the leading challenger of citations, contesting 3,741 violation citations, which accounted for more than 11% of the dollar value of fines involved. Contests brought by Massey and other coal companies caused a backlog of cases that overloaded the FMSHRC.

An independent investigation completed in 2011 stated:

The story of Upper Big Branch is a cautionary tale of hubris. A company that was a towering presence in the Appalachian coalfields operated its mines in a profoundly reckless manner, and 29 coal miners paid with their lives for the corporate risk-taking. The April 5, 2010, explosion was not something that happened out of the blue, an event that could not have been anticipated or prevented. It was, to the contrary, a completely predictable result for a company that ignored basic safety standards and put too much faith in its own mythology.

Upper Big Branch, Report to the Governor, May 2011, pg. 108 

Perhaps instead of litigating every citation, Massey should have paid more attention to “the physics, the chemistry, the math, the science … [to] figure out what [Massey] could do to prevent [explosions] from happening….” The Wall Street Journal will no doubt seek to portray Blankenship as an object of pity, a martyr for the cause of fighting over-regulation. They might even insist that he not be crucified on a Cross of Carbon.

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Putin - exasperated

Yes Vlad, oil prices are all the way down there.

About this time last year, the Sparkspread pointed out that Vladimir Putin had overlooked Energy Rule Numero Uno when he re-annexed Crimea to Russia sixty years after Khruschev gave it back to Ukraine. That rule is that energy is all about infrastructure. So, before you invade a country with the ultimate goal of ruling it (and therefore, of necessity, administering it in one fashion or another), you should make sure you understand the target territory’s energy infrastructure.

This is something Putin notably forgot to do. Crimea has four power plants that aggregate to a rather puny 327MW in nameplate capacity, but demand in Crimea ranges from 850MW to 1250MW in winter, depending on the severity of the season.

The math is easy. More than 80% of Crimea’s commodity electricity supply is under the control of Kiev, and Kiev, being the capital of Ukraine, takes a rather dim view of Volodya’s revanchism.

The maps are pretty easy too. The little Isthmus of Perekop, which connects Crimea to Ukraine, is a chokepoint with two main transmission lines that supply the Crimean peninsula.

Crimea-electricity--638x539

Electric transmission lines into Crimea

Wait… Did we say that Kiev controls the electricity supply? Not so fast. Over the past week or so, saboteurs have blown up power lines in southern Ukraine, which have plunged Russian-annexed Crimea into an energy crisis. About 2 million Crimeans are now relying on emergency generators. This proves the point the Sparkspread made last November: Crimea depends almost entirely on Ukraine for energy.

And that’s not Putin’s only headache. Under Russian law, using drafted Russian soldiers outside the borders of Russia requires the soldiers’ consent. (Of course, “Russian law,” along with “moderate rebel” and “limited nuclear war,” enters the language as one of the 21st Century’s new oxymorons.) The fighting in Ukraine produced about 2000 dead and 3200 wounded Russian soldiers. Hmmm… How to explain that? Injured in training? That’s a tough sell. That many dead and disabled soldiers in a war of choice presents a fundamental question of political sustainability of the conflict at home, even if home is a totalitarian state. Vlad might give a call to Dubbaya if he has any doubts.

Oil prices stayed low. U.S. and European sanctions started to affect the Russian economy. Just as von Schrotter described Prussia as an army with a country, Russia can be imagined as an army with oil fields and natural gas reserves. But under sanctions, drilling for new reserves and maintaining the production equipment on existing fields became far more difficult. Putin’s oil oligarchs and their apparatchiks have had their hands full trying to maintain Russian oil production in both quantity and quality.

Vladimir had to weigh the costs and benefits of his Crimean campaign. Better to cut his losses on Crimea, leaving matters to the resident separatists, and focus on a new adventure.

Like Syria, maybe.

This past February, Putin and Peroshenko, Ukraine’s president, inked the Minsk II accord, which at least implemented a cease-fire, more or less. Peroshenko had to recognize his country’s loss of certain territory in Ukraine to pro-Russian separatists, and the deal allowed Putin to pull the Russian army out without too much loss of face. Putin’s proxy war through Russian-leaning separatists continued in full swing, of course, but since the Russian pull-out the separatists’ battles have not yielded any significant territorial gains beyond what was already obtained through Minsk II.

Kiev is not in control of rebuilding the transmission lines in Ukraine. Ethnic Tatars, whose parents and grandparents were forcibly deported by Stalin at the end of WWII, and Ukrainian nationalists have blocked repair teams. So far, authorities in Kiev have not tried to force the issue.

Putin is now accusing Ukraine of “torturing” Crimeans with the power cuts. Russia has responded by cutting coal deliveries to Ukraine. Coal sales are one thing, but he hasn’t shut off natural gas yet. Russia needs the natural gas revenues as much as it ever did, but escalation is always possible. But if Putin presses too hard on Ukraine, he’ll just unite Ukrainians against him politically.

As the winter sets in, this should provide some great political theater.

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Driving through Miami, FL at high tide (with blue skies and no hurricane)

Driving through Miami, FL at high tide (with blue skies and no hurricane)

Some prominent politicians believe climate change is a hoax, but don’t tell that to people in Miami Beach, where high tide regularly floods the streets.

The Chicago Tribune reports on Miami Beach’s seemingly paradoxical effort to fight rising sea levels by building more oceanfront highrises:

Miami Beach fights rising sea by building more waterfront condos – Chicago Tribune.

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