A decade ago, the Powder River Basin was hitting its economic peak. Fracking was exploding to pump new life into Wyoming’s oil and natural gas industries, and coal was proving why it was the real black gold of the Cowboy State.
The Powder River Basin produced nearly 420 million tons of coal in 2009 and accounted for 50% of the electricity generation in the United States. The four large, publicly traded coal companies that dominated PRB production were so flush with cash they were taking on billions in debt to fuel extensive expansion and growth.
Looking into a crystal ball then, today’s outlook for the basin and thermal coal industry would seem more a peek into a twisted Bizzaro World with the PRB on pace to produce less than half the coal it did in 2009 and account for only about 17% of U.S. power generation.
‘Coal’ is a four-letter word
While the shadow of climate change was cresting the hill and more renewable sources of energy were coming online 10 years ago, nobody could predict how fast and far coal would fall, said Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming School of Business.
“Ten years ago, in most people’s minds, the threat of climate change was still real, but it just didn’t feel as pressing,” he said. “A decade later, it feels much more pressing.”
A shift in public and governmental policy to promote renewables, along with an unprecedented drop in natural gas prices has created what Godby said 10 years ago he would’ve dismissed as “some abstract future” that didn’t seem likely.
“Did I imagine this would all happen? I guess at some point, probably, I thought this would eventually happen,” he said. “But it’s really been accelerated. Now we’re seeing that future in progress.”
While the market has played a large role in displacing coal as America’s go-to source of power, a decade of governmental policies aimed at phasing out fossil fuels also has made coal an undesirable four-letter word, said Travis Deti, executive director of the Wyoming Mining Association.
“The coal resource we have here in Wyoming and the Powder River Basin is so vast and so valuable, in my opinion, it would’ve been unthinkable to predict we’d be where we are 10 years down the line,” he said. “No way it would’ve happened as quickly as it has.”
Five high-profile Chapter 11 bankruptcies later, the basin was recently dealt another blow when a federal judge upheld the Federal Trade Commission’s rejection of a proposed joint venture between Arch Resources and Peabody Energy. The two largest producers of thermal coal in the United States billed the joint venture as their best last chance to stabilize PRB coal.
That denial sparked a swift and extreme response from Arch, which already had been distancing itself from that four-letter word and rebranded itself as Arch Resources Inc. in May. The company responded that not only is the effort for a joint venture dead, but Arch is considering “strategic alternatives” for its thermal operations in the PRB, including selling its mines.
Arch owns the Black Thunder and Coal Creek mines in Campbell County, which would have been operated under a 66% ownership by Peabody had the merger gone through. Peabody owns the North Antelope Rochelle, Caballo and Rawhide mines in Campbell County.
The scuttling of the joint venture and Arch’s response sends a clear message about the state of PRB coal, Godby said.
“It’s just more of an admission that the writing is on the wall for coal,” he said. “Coal’s position in generation of electricity is going to continue to decline. We’ve not yet seen the bottom.
“Where is it going to be by 2050? We don’t know, but it’s probably under 10%. The real question is what takes its place?”
Deti agrees, saying that while coal will still play an important part in domestic energy production, it’s not likely to be the silverback gorilla of Wyoming energy it once was.
“With Arch indicating their desire to get out of the thermal coal market, it will be interesting to see what happens,” Deti said. “You may see some of those (PRB) operations downsize.
“Demand is shrinking and will continue to shrink for the foreseeable future. The coal industry is not going to shut down overnight, but the demand is dropping.”
By the numbers
A downsizing from either Arch or Peabody could have a dramatic impact on the Powder River Basin. Between them, the companies employed 2,441 workers at the end of June, or nearly 60% of the basin’s workforce of 4,090, according to the federal Mine Safety and Health Administration.
One of the main reasons for the drop in demand is an accelerated push from energy companies retiring or moving up the retirement of coal-fired power plants.
With natural gas continuing to be cheaper and burn cleaner than coal, it makes good business sense for plants to burn gas instead of coal, Godby said.
Since 2011, 95 gigawatts of coal-fired generation was either closed or switched to another fuel, according to the U.S. Energy Information Administration. Another 25 Gw is scheduled for retirement by 2025. Those closures bring the capacity of the U.S. generation fleet to less than 200 Gw, more than a third less than its peak of 314 Gw in 2011.
With the Powder River Basin accounting for 40% of the nation’s thermal coal, there’s no way plant closures don’t have a significant impact on demand, Godby said.
“There is an expected rebound in the next year or two, possibly,” he said about the impact of the economy coming back online during and after the COVID-19 pandemic. “The thinking is next year will be better. There is that near-term possibility, but the long-term outlook for coal is dire.
“Natural gas is not necessarily going to go away, renewables are accelerating and coal plants are closing. Coal is backsliding and it’s going to continue.”
Another indicator of the state of the nation’s power consumption is that as of the end of 2019, nine of the 10 highest-generating power plants in the United States were nuclear, according to the EIA. The outlier, the West County Energy Center in Florida, is a coal-fired plant.
A decade earlier in 2010, coal accounted for four of the top 10 generating plants, while the other six were nuclear.
All of the above, along with a global push against thermal coal, led to 2019 posting a 42-year low for coal-fired generation in the United States.
The 966,000 gigawatthours produced last year was the lowest level since 1976, the EIA reports.
“The decline in last year’s coal generation levels was the largest percentage decline in history (16%) and second-largest in absolute terms (24,000 GWh),” the agency said in a May report. “The U.S. coal fleet generated as much as 67% of its capacity in 2010, based on the operating capacity at the time. Coal’s utilization rate has declined since then, and in 2019 it fell to 48%.”
At the same time, competing sources of energy have taken much of coal’s market share.
“In particular, natural gas combined-cycle termite plants ran at 57% of capacity in 2019 versus less than 50% of capacity for coal,” according to the report.
While it’s easy to see the outlook for PRB coal as bleak, it’s far from dead, Godby said.
Asked if the dramatic decline in coal’s share of the energy market makes it a niche product in the energy landscape, he said it’s not even close.
“Not yet by a long shot,” he said. “A niche producer, in my mind, is something like geothermal where the overall production is, like, 1%. If coal were at 20%, that’s still where renewables were a few years ago.
“Coal’s not the dominant force it was from the 1950s through about 2015-16. Gas and coal only swapped positions in 2017, so coal had a pretty good 70-year run.”
Arch changing course
On Thursday, Arch Resources announced it was accelerating efforts to divest itself of its Powder River Basin coal mines as it expects to produce about 27% less coal this year than in 2019 and plans to wind down its Wyoming operations by an additional 50% over the next two to three years.
The company lost more than $191 million in the third quarter of 2020, compared to being in the black about $106 million in the same quarter last year, Arch reported Thursday morning. Arch also took a write-down of its legacy thermal coal operations of about $163 million in the quarter, similar to the $1.42 billion write-down Peabody Energy took on its North Antelope Rochelle mine earlier this year.
Arch also announced that after the demise of a proposed joint venture with Peabody, which would have combined the companies’ Western coal assets under a single operator, it is steering away from thermal coal. That could include selling its Powder River Basin mines in Campbell County, Black Thunder and Coal Creek.
In the mean time, CEO Paul A. Lang said Arch is implementing a “systematic winding down” of its Western coal operations that will see the Wyoming mines produce significantly less coal in the next few years.
“We view this systematic winding down of our thermal operations — in a way that allows us to continue to harvest case and to fund long-term closure costs with ongoing operating cash flows — as the right business solution in the event we are unable to find an appropriate buyer,” Lang said.
Last year, Arch’s PRB mines produced nearly 75 million tons of coal, but are on track to produce only about 55 million tons this year, said Matthew Giljum, the company’s chief financial officer. The mines can expect to see production continue to decline by about another 50% over the next two to three years as Arch moves into its winding down phase.
What that means for the 1,142 workers at the company’s Wyoming mines is unknown, but Arch’s workforce represents nearly 28% of the Powder River Basin’s overall workforce of 4,090, as reported for the second quarter of this year by the federal Mine Health and Safety Administration.
Arch Resources is the second-largest coal employer in the basin, behind Peabody, which has 1,299 workers at three mines. Between them, they represent 60% of the PRB workforce.
“We have launched an accelerated effort to evaluate strategic alternatives for our thermal operations, including possible divestiture,” Lang said. “Simultaneously, we are finalizing plans to shrink the operational footprint at these operations, with a particular emphasis on our Powder River Basin assets.”
Those assets are on opposite ends of the spectrum. The Black Thunder mine is one of the most productive in the world, producing more than 72 million tons of coal last year. Coal Creek mined about 2.5 million tons.
While it’s not known if a viable buyer will emerge for the Wyoming mines, Lang said the company’s preparing either way. If it doesn’t sell the mines, it’s still facing up to $550 million worth of reclamation obligations, although the actual cost of reclamation will be much less, he said.
“We believe that a careful and well-communicated exit strategy is the most responsible way forward for a range of essential stakeholders, including our employees, the communities in which we operate, our longstanding customer base and the many consumers who continue to rely on coal-based electricity,” Lang said.
That Arch Resources is moving on from thermal coal doesn’t come as a shock for people in Campbell County, said Commissioner Rusty Bell.
“Is it good news? No, but is it anything that’s going to surprise us? I don’t think there’s anything that can surprise us in Campbell County anymore,” Bell said.
He said that while the joint venture’s denial was disappointing, especially for Arch and Peabody, it also may mean more of a lifespan for the basin’s smaller mines.
While sad to see announcements like Thursday’s, Arch has been a good business partner in Campbell County, Bell said.
“They have been an incredible partner in Campbell County for a long, long time,” he said. “I hope they have a responsible transition, and I’m sure they will.
“They’ve got to do what’s best for them and hopefully their exit takes in mind we have been good partners.”
The Biden effect
Another concern for fossil fuels is the Nov. 3 presidential election.
Former vice president and Democratic candidate Joe Biden has made climate change and an aggressive anti-fossil fuels platform a major point of his challenge of Republican President Donald Trump.
In a debate before securing the Democratic nomination, Biden was asked point-blank if there would be any place in his administration for fossil fuels, including coal and fracking.
“No. We would work it out,” Biden answered. “We would make sure it’s eliminated, and no more subsidies for either one of those (or) any fossil fuel.”
He doubled down on that during his Sept. 30 debate with Trump, saying his goal is to eliminate power generation from fossil fuels by 2035.
After eight years of a Barack Obama administration that imposed numerous regulations on coal and oil, Deti said he’s concerned that Biden could push an already teetering industry over a cliff.
“A Biden administration is troubling,” Deti said. “He’s made no bones about it, and not only with coal, but oil and gas. With a Biden administration, you get an Obama administration on steroids.”
It’s easy to see why people in the Powder River Basin would be concerned by Biden’s energy promises, Godby said. In reality, the more immediate impact could be felt by oil producers. That’s in part because coal’s decline doesn’t need much help now.
“Is there really much needed to be done about coal?” He asked. “A Biden presidency is really a question. There are lots of what ifs there.”
A focus first on fracking could actually be a short-term benefit for coal, Godby said.
“What potentially, ironically, could happen is the short-term decisions Biden could make could benefit coal,” he said. “If fracking were controlled in more places and more federal control of oil and gas, there could be a higher demand for coal.
“It’s probably more likely he could have an impact on natural gas first, because that could be an executive order to just shut down federal leasing. Whereas, shutting down coal leasing really doesn’t do anything because nobody’s bought a coal lease in awhile.”
Other analysts agree that a Biden administration would be challenging for thermal coal. In a report issued this week, Moody’s Investors Service says that coal producers, “already reeling from a combination of challenges … would see an accelerated decline in demand under the policies proposed by Democratic candidate Joseph Biden.”
In particular, his proposals on climate change and decarbonization “will directly affect coal companies,” the report says. “Importantly, demand for thermal coal will remain in secular decline in the 2020s regardless of the winner of the presidential election.
“However, we expect the energy policy under a Biden administration would accelerate the decline of thermal coal.”
Whatever the outcome of the election, the decline of thermal coal has likely passed its point of no return, Godby said.
“How many more years do we get (from coal) and will it be a few more relatively solid years, or acceleratingly lean years?” he said. “It’s not about the type of energy you use anymore, it’s about the carbon emissions they create. If we’ve learned anything from the Trump administration, it’s that the markets are in control in a lot of ways.”
Like a boulder rolling down a mountain, it’s tough to stop the momentum of a down slide once it’s started, Godby said.
“Will either a Biden election or Trump make the demise any faster?” he asked. “Well, how much faster can it be?”
A decision will be made next week on what happens next with Close to Home Hospice Hospitality House after inpatient hospice services were suspended at the facility last month.
Hospital trustees recently discussed the decision to temporarily suspend the facility’s inpatient hospice services and acknowledged that the change was not communicated ideally to the public.
“Obviously, this whole Hospice House, we kind of hit that maybe a little bit on the wrong side,” Heeter said Thursday during a hospital board retreat. “(We) didn’t proactively do what we needed to do and had to recover on the back end. We want to enhance our relationship with the community.”
Although the services were suspended in late September, it did not come to light publicly until a series of Facebook posts last week from a local resident who learned of the closure when her family member was spending her last days in the hospital and unable to transfer to Close to Home.
Several trustees discussed getting ahead of the hospital’s messaging and warned of the perils of getting sucked into social media debates regarding hospital matters.
“Where the mistake was made was in communication,” Trustee Sara Hartsaw said during the retreat. “It was perfectly rational for the decision to pull back those services in the current times and financial situation and looking at the patient volumes. ... It’s unfortunate in the way it played out in the public.”
The halt of inpatient services began at the end of September as a result of a decrease in demand for inpatient hospice services, Heeter said.
“We have seen since the Hospice House has opened a pretty significant downward climb, and an upward climb in outpatients,” Heeter said at the retreat. “Not just during COVID. We are openly going to re-look at this.”
Why the decrease?
Exactly why inpatient demand has decreased is unclear, but Ashley Montague, the director of Home Health Hospice, offered some possible causes.
“I can tell you that in all of the discussions and nights that I lay awake wondering myself, there’s not one specific thing that I can point to,” Montague said at the retreat.
Many patients want to spend their last days in the comfort of their own home, making more traditional home hospice services preferred, she said. Not having a caregiver at home is a common reason why a patient would come to Close to Home.
As a possible silver lining to the pandemic, it has allowed more families to stay home and therefore be available to care for loved ones, Montague said.
Also, lack of coverage for the room and board costs, which are typically not covered by insurance or Medicare can be a factor, especially when compared with at-home hospice services that are more likely to be covered, she added.
This year, Close to Home had either zero or one patient for 27 days in March, 19 days in June, 12 days in July and 25 days in August.
That decline in demand for services resulted in a combined 2,728 reduced work hours for the facilities inpatient care staff.
“Which then led to staff in my office saying, ‘I need a consistent schedule and I need a paycheck week-to-week,’” Montague said.
The temporary suspension allowed those staff members to be reallocated throughout the CCH network and receive steady work while the hospital reevaluates what to do with inpatient hospice services going forward, she said.
For patients who want inpatient hospice services but don’t qualify within the narrow definitions of “general inpatient” or “respite” services, they are generally not covered by insurance or Medicare, Montague said.
The resulting room and board charge that comes is $265.50 each day for inpatients at Close to Home. Montague said that many of those patients opt to self-pay.
Because of the end-of-life nature of hospice care, self-pay patients who then pass away end up having their bills chalked up to bad debt or charity care, she said.
“If someone is self-pay, but they then pass away, there are often times no one is going to pay that bill,” Montague said.
A trend toward outpatient
The number of inpatient days at Close to Home has dropped from 1,531 to 1,253 between CCH’s fiscal years 2019 and 2020. After a drastically lower first quarter for fiscal year 2021, where the organization only logged 107 inpatient days, they decided to suspend operations and reevaluate later, Heeter told the News Record last week.
During that same timespan, outpatient hospice services have increased from 1,845 patient days to 2,253, she added.
Montague said the increase in outpatient care ultimately results in more patients being where they want to be, which is at home, and receiving more insurance coverage than they would with inpatient services.
“A trend upward in outpatient hospice is a good thing,” she said. “Nothing that needs to be fixed.”
Although inpatient services remain shutdown at Close to Home, those services are still available at the Legacy Living and Rehabilitation Center. Hospice patients there will be allowed to have limited guest visits in compliance with CCH guidelines.
Reevaluating Close to Home’s inpatient hospice services is “an example of a real-life situation we’re facing,” said CCH CFO Mary Lou Tate during the retreat.
“We have made some tough choices. ... We’re still providing the care, but we’re providing it in a cost-effective manner by having it done at the Legacy right now when, as we’ve shown, 75% of our month we have no patients,” Tate said.
Balancing cost-effectiveness, demand for services and public perception will all come into play when hospital administration decides next week on what to do with Close to Home’s inpatient hospice services.
Aside from trying to figure out which local, state and national candidates to choose at the polls Nov. 3, Campbell County residents have another decision to make — whether to approve a lodging tax increase.
Every four years, county residents have been asked whether to continue a 2% lodging tax. Voters approved the tax in 2008, 2012 and 2016.
This year voters will consider consider that same 2% county tax. Because of the Wyoming Legislature’s decision earlier in the year to implement a statewide lodging tax where 2% of the proceeds would go to cities, towns and counties starting in 2021, Campbell County’s vote would raise the lodging tax here another 2% to 4% total.
There is a misunderstanding about the latest Campbell County lodging tax proposal, said Mary Silvernell, Campbell County Lodging Tax Political Action Committee chairwoman, and state Rep. Scott Clem, R-Gillette.
What is before the people is not a new tax. Instead, what voters are considering is renewing the county’s 2% lodging tax to go along with the 2% from the state. If voters turn the local ballot proposal down, the local lodging tax collected will remain at 2%, Silvernell said.
In this year’s budget session, the Legislature voted to implement a 5% statewide lodging tax with 3% of the revenue going to the state and the remaining 2% staying locally. For Campbell County, the approval of the additional 2% lodging tax would bring the overall number up to 7%.
“First, this is a new law. It doesn’t go into effect until Jan. 1, 2021,” Clem said. “The bigger component of that is it imposes a state lodging tax, something we didn’t have before.
“Under the current framework voters had to approve (the tax) in order to become effective. Localities will always get 2% no matter what.”
If Campbell County voters renew the local 2% tax, it will remain in effect for four years.
‘Give us the opportunity’
Some say the proposal to put the 2% lodging tax back on the ballot will benefit the community because visitors will pick up the tab instead of Campbell County residents, unless they enjoy a staycation and sleep at a local hotel.
“We have to have people understand that the money we get enables us to market and publicize what we have here in Campbell County so we can keep businesses going, i.e. locally owned restaurants, retail stores, things in addition to museums, Cam-plex and the Energy Capital Sports Complex,” Silvernell said.
This would help local businesses that have struggled mightily over the past several months because of the COVID-19 pandemic, especially the lodging industry, which has seen more than 30% in revenue losses in 2020.
“Any chance we get to have people from out of town to come here and use our facilities and spend time here, that helps the residents because, quite honestly, a lot of taxes offset what residents do to upkeep what we have,” she said.
“I do think that with everything going on in the (energy) industry we have to have something else to add to economic diversification. Tourism is such an easy thing to consider because we already have the facilities, the infrastructure.
“All we’re saying is give us the opportunity to advertise so we can get more people into the facilities,” she said.
Others say that while that tourism benefits the community, the proposal before the voters contains a three-letter word that is not popular to many people: tax.
Over the summer, the Gillette City Council and Campbell County Board of Commissioners voted in favor of putting the item on the ballot. Two commissioners, however, voted against the idea, Del Shelstad and Colleen Faber.
Keeping the tax where it is could be a good selling point for travelers coming to Campbell County because they wouldn’t have to fork over any extra money. An increase in the tax may discourage them from staying in Gillette hotels, Faber said at a September Joint Powers Lodging Tax Board meeting after being asked why she voted against putting the tax on the ballot.
A lot of people are anti-tax, but the lodging tax issue has passed in previous elections, Silvernell said.
“We’re hoping that if people have questions and are considering voting no, please contact me,” she said, adding that the key is for people to be educated about the issue.
Clem said he does not think the outcome of the lodging tax question, one way or another, will likely have a big impact on tourism in Campbell County.
“The main driver of tourism is can people afford to travel? Do they have the disposable income to do that?” he asked. “We’ll see how that goes in the future given our economic situation nationally. We may see less travel.”