Kentucky Coal President Bill Bissett discusses issues facing the industry and the EPA’s ‘enhanced review’ of mining operations
By Ed Lane
Ed Lane: The Kentucky Coal Association (KCA) represents coal companies operating approximately 440 mines in Easter n and Western Kentucky. Based on 2009 data, coal production in Kentucky was 112.9 million tons. Kentucky’s 2009 coal sales were $5.3 billion dollars based on $58 a ton. What is KCA’s outlook for Kentucky’s coal industry in 2012?
Bill Bissett: If I had to pick one word right now for the coal industry in Kentucky, that word would be “uncertainty.” That’s very concerning in a bad economy in any business, but especially when you have large, publicly traded multinational corporations as well as privately owned smaller companies.
Uncertainty is never good for businesses or the people employed by businesses. The coal industry faces a lot of challenges. I’m not sure that the public – 4.1 million Kentuckians – truly understands how uncertainty in the coal industry can have a direct effect on the entire economy of Kentucky.
EL: What are two or three areas of uncertainty?
BB: One would be the economy; this is a challenging time for all businesses. Beyond that, the coal industry, especially in Appalachia, has found itself at odds with Washington, D.C., and the Obama administration. President Obama and his Environmental Protection Agency have specifically targeted Appalachian coal production for what the EPA calls “enhanced review.” KCA feels increased scrutiny is unfair based either on geography or the competitiveness between coal basins in Eastern or Western Kentucky.
It’s for these reasons that the KCA and Gov. Steve Beshear have sued Lisa Jackson, the administrator of the EPA. We are very confident we’ll win our lawsuit later this year.
A third issue is: How will power companies provide electricity for the commonwealth and the entire country? Do we use natural gas or other forms of energy? Every form of electricity production has some type of economic and environmental cost. The pros and cons of each energy source need to be carefully considered because they all impact affordability and reliability – the two poles in electricity production.
EL: The EPA has placed higher emission standards on power plants and has restricted, delayed or objected to the issuance of mining per mits in some cases. How serious is the pr oblem for coal mining companies?
BB: Nitric oxide and sulfur dioxide emissions from power plants have steadily declined since 1970. Carbon dioxide emissions have increased due to increased power consumption. Since April 1, 2010, no surface mine in Eastern Kentucky has received an “individual” permit to mine coal. That’s half the coal production of Eastern Kentucky and a serious economic concern to a region that doesn’t have a diversified economy.
The permits the EPA objected to were either extensions of existing operations or new operations. When the state of Kentucky reviews a permit and says it’s good, you can mine coal; when state-approved permits were sent to EPA’s Region 4 headquarters in Atlanta, they were objected to.
On Sept. 28, 2011, the EPA objected to 19 permits; these objections were similar to 21 that happened a year ago. There is no specificity as to why the EPA was objecting, and the notice given was all in one letter. Beyond the economic consideration, the unfairness is that the exact same permit as in Western Kentucky, in Illinois or in Wyoming would be approved. The EPA is discriminating – not by congressional action but by using a document from a bureaucrat.
Energy Information Assistance (EIN) estimates that in the United States electricity demand will increase by 40 percent by 2025. The United States will need to increase electricity production at a time when the EPA is clearly trying to limit one area of coal production. How will the energy industry meet this demand? It can’t go down to Walmart and buy it.
EL: How are new EPA regulations going to affect the costs of electricity in Ken tucky? How does Kentucky’s cost of electricity rank nationwide?
BB: Kentucky benefits from one of the lowest cost per kilowatt rates in the nation. When Gov. Beshear travels to India to lure manufacturers to the commonwealth, one of the first things he talks about is Kentucky’s rate per kilowatt hour. Kentucky continues to benefit by retaining manufacturing that many other states have lost not to other states but to other countries. If electric utility rates increase because of environmental surcharges, it will damage the state’s ability to attract manufactures and likely cause manufacturers – like aluminum companies – to consider overseas locations. Other advanced manufacturing opportunities that Mayors Jim Gray (Lexington) and Greg Fischer (Louisville) are trying to attract could be jeopardized.
Kentucky is competing with 49 other states and foreign countries to attract new and expanding advanced manufacturing businesses. The cost per kilowatt hour is a major factor in site selection, and uncertainty puts Kentucky’s competitive advantage in question.
EL: What are two foreign countries that have competitive power sources?
BB: India and China. In site selection, one of the pie wedges is utility costs. Other costs are wages, health insurance, real estate costs, taxes and environmental scrutiny. One of the few cost comparisons Kentucky can win is electricity rates. India and China are paying about the same costs for raw materials used in manufacturing, but their labor and environmental costs are much less.
The United States has a very reliable system of electricity generation that affects life expectancy and the production of goods. China does not.
EL: What about nuclear energy?
BB: Nuclear plants tend to be older facilities, and the industry hasn’t built a U.S. nuclear power plant in some time. Now, with the effects of the (March 2011) Japanese tsunami, it may be even longer. But, again, the United States needs new sources of power to meet the projected 40 percent increase in electric demand.
In Kentucky, utilities have a mandate to use the most affordable process to create electricity but to also provide reliable electricity; a utility can’t occasionally shut off electricity to a hospital, school or airport. So when it considers what kind of fuel it is going to use, there are two tracks to consider. Each form of electricity production has positives and negatives.
Coal can be stockpiled. Natural gas is delivered in a pipeline, but a supply in large tanks can’t sit outside the power plant; if pipeline service is interrupted, the plant cannot produce electricity.
Renewable sources – wind, solar, geothermal – are very popular in a lot of ways and have less impact on the environment, but they don’t produce enough electricity to be viable. Renewable sources have issues of affordability, reliability and scope (how much electricity can be produced). Utilities will change as government dictates and to a certain degree based on what consumers dictate, but cost will always be passed through to the ratepayer. So at the end of the day, the customer is picking up the tab.
After the Three Mile Island meltdown (in 1979), nuclear power was not an option for most of the United States. And there may have been a day when the coal industry was concerned about competition from nuclear power. Today, the industry truly believes a projected 40 percent increase in energy demand both domestically and internationally will boost the demand for coal. The major question is will the industry be able to mine it? As I told The Paducah Sun newspaper, the KCA is neutral on nuclear power development but asks that it exist as a long-term choice for electricity generation. When electricity production depends on subsidies or government incentives, it will not exist longterm in the marketplace.
EL: How many persons are employed at Kentucky coal companies – miners, support and administrative staff? What is the salary range for miners?
BB: There are more than 18,000 coal miners who mine coal every day. For every one miner, three other coal company workers are dependent on that miner for their livelihoods. Starting salaries for miners in rural Kentucky range from $65,000 to $70,000 with excellent benefits.
EL: What percentage of U.S. coal does Kentucky produce?
BB: Kentucky is ranked third in the United States in coal production. About 10 percent of the nation’s coal is produced in Kentucky from the Appalachian (east) and Illinois (west) coal basins. About two-thirds of Kentucky coal is from the east and about onethird from the west.
Users buy coal for very specific reasons: for temperature production and the by-products that remain after coal is used in combustion. Ninety-four percent of Kentucky’s coal is used for electricity production, mostly in Southern states. The varying degrees of quality and how coal will be used determines its prices.
EL: What entities are the biggest users of Kentucky coal?
BB: Electric power plants accounted for 94 percent of all Kentucky coal sold in 2009. People would be surprised at that. One of the two factoids that people seem most surprised about regarding Kentucky coal is that the lion’s share is not shipped overseas; it remains domestic, and a sizable amount remains in the state.
The second fact is that 97 percent of Kentucky coal miners are not union members. That goes against that public perception. Kentucky is a right-to-work state. Our miners are very well paid, are in demand, have excellent benefits and good retirement plans. That need for union representation for coal miners working in the field no longer exists, and as union membership has decreased safety has gotten better.
EL: Coal companies extracting coal in Kentucky pay a severance fee. How are these fees invested by the state?
BB: Half the severance fees from the coalfields return to local communities to be used for development, roads, water projects and school infrastructure. The other half goes into the state’s General Fund. Recent Frankfort budget projections estimate coal severance would be one of the few revenue streams that will increase.
EL: Former Gov. Paul Patton and Speaker of the Kentucky House Gr eg Stumbo are advocating the use of coal severance fees to help fund the University of Pikeville. Do you like this use for severance fees, and do you feel this proposed investment a good idea?
BB: This is a question for experts in higher education. Before a long-term decision is made on how to spend coal severance fees, our legislators need to be certain the future of the coal industry will be vibrant and able to meet the obligations. With the Obama administration in D.C., making long-term severance fee revenue projections, especially in Appalachia and in the eastern coalfields, is a concern.
EL: Is that because ther e is more surface mining in the east?
BB: Appalachian coal mining is split about 50 percent underground and 50 percent surface. The scrutiny is overwhelming on surface mining, but a lot of the EPA’s enhanced review is also underground.
EL: How long will coal severance fees last in Kentucky?
BB: There are 86.3 billion tons of Kentucky coal reserves that remain, but all reserves cannot be economically mined.
At the current rate of extraction and level of mining technology, perhaps a 200to 300-year supply of coal reserves remain. That being said, when you compare how the industry mined coal 40 years ago to how it mines today, technology has seen a huge improvement not only in safety but also in productivity.
EL: What kinds of technology are boosting productivity?
BB: Robotics, or continuous-miner machines, allow coal miners to be away from the mine face itself and permit continuous production of coal, which is obviously beneficial to everyone. Surface mining technology allows coal to be mined in a way that has less dirt and rock with it, reducing plant prep costs (removing dirt and rock) and the volume of water used and treated in the process. Robotics is also making it safer for miners because it moves them away from where the mining process is occurring. If you review the overall safety trends, the industry continues to do a better job with mine safety, but we have more work to do.
EL: What type of mine safety initiatives are now in effect?
BB: First-response training occurs at every mine. In an emergency, you not only have to get someone who is injured out of the mine but also transport them to the nearest emergency healthcare facility. As you know, some coal mines are in remote locations. So there is a need to respond quickly and efficiently. Some of the larger mines have a nurse on site to provide immediate medical care as well as a doctor available over closed-circuit television.
The companies’ safety initiatives focus on the miner. Everyone in this industry will tell you the most important element is the miner. Taking care of our coal miners secures the economic future of the coal industry. It goes beyond preventing accidents. The health of the miner is protected through good dustcontrol efforts, methane detection that will automatically shut off all machinery should methane be detected as well as constant training and inspection from both regulators and company mine safety technicians.
Coal companies have their own inspectors to make sure operations are in compliance, just like many industries do. I don’t think people realize that. Some mines have had more inspection days than operation days.
EL: What is a coal company’s obligation to reclaim land after mining is complete? BB: I spend a good amount of time talking with environmental activists. I was recently at a dinner with people of different environmental persuasions. Surface mining remains a lot of what I talk about in my job. The coal industry has to tell the total story of the mining process.
Begin with the fact that someone owns the land and is paid royalties on coal that is extracted. The property owner also decides what they want to do with the land after the mining process is final. You can’t land on an Eastern Kentucky airport that wasn’t a surface mine at one point. Once a strip mine has been properly reclaimed or has a good post-mine land use, we forget it ever was a coal mine because it’s now a development of some type. That’s not in every case; only about 10 percent of strip mines are developed, but most are returned to their approximate original contour.
EL: How is coal transported?
BB: Kentucky mining companies use many different ways to get coal to market: rail, truck, barge, etc. I’m originally from West Virginia, where you see coal trucks, trains and barges literally on the steps of the state capitol. In Kentucky, we don’t see coal being transported. You don’t see coal trains or trucks. You don’t see it in Louisville, Lexington or Frankfort. The coal industry in Kentucky is very much out of sight, out of mind. So one of KCA’s challenges is how to remind people that, yes, there actually are coal mines in Kentucky and they have a major economic impact on our economy.
EL: How is KCA’s and the coal mining industry’s relationship with the Kentucky Energy and Environmental Cabinet?
BB: I would say collaborative. We are not always in agreement. The main thing we ask for is a line of communication. The KCA doesn’t always expect to be in agreement, but it does expect to have a clear answer and an open door and would expect the entire environmental community to have the same level of access.
EL: What is the greatest challenge to the coal industry?
BB: The greatest challenge, not just facing coal but everyone who works in a field connected to electricity production, is: How do we meet that increased demand that is going to quickly be upon us? Coal production in Kentucky is essentially flat at present. Kentuckians want affordable electricity; they want their light switch to work, and anything that interrupts reliable service is going to create a lot of concern. The challenge is getting more people to understand coal production affects electricity production. The availability, reliability and cost of electricity production affects the overall economy whether you’re running the University of Kentucky or a small screen-printing shop.
Everyone has to pay their electric bill.
If you buy a Chevrolet Volt electric hybrid car, 92 of every 100 miles you travel in Kentucky are powered by coal, 92 of 100 emails, and 92 of 100 cell phone calls are powered by coal. The “black rock” is providing the power to record this interview. Kentuckians don’t realize how important coal-fired power plants are in their daily life.
EL: What is the future for export sales? BB: The Energy Information Administration (eia.gov) is a very useful website. This is one example: In 2008 the United States used 1.1 billion tons of coal; China used 2.8 billion tons. Flash forward to 2030, and the expectation is U.S. coal consumption will increase 211 million tons and China’s consumption will increase by 2.1 billion tons. China is going to need about a billion tons of coal from somewhere else. Will that be from Eastern and Western Kentucky?
The KCA gets calls every other week from brokers and purchasers wanting to buy millions of tons of coal right now to ship overseas. Most of our member coal companies are already locked into longterm contracts and don’t have a lot of coal sitting around waiting to be purchased. Domestic coal demand is going to increase, and the international demand is going to skyrocket.
America’s Top Lawyer
ABA President Bill Robinson’s people skills and professional acumen made him a leading Kentucky attorney long ago.
One-On-One: Bill Bissett
Kentucky Coal President Bill Bissett discusses issues facing the industry and the EPA’s ‘enhanced review’ of mining operations
Legal Services: Slow Improvement in 2012
Law firms still have their belts tightened but expect improved results in the coming year
Accounting Services: Growth and Change in 2012
Accounting sector foresees rising demand for business services and expects firm mergers
Forensic Accounting Steps into the Spotlight
Fraud investigators will track down what happened, but deterrence is a better strategy
False Security and the Financial Crisis
Add an inverted yield curve to artificial pricing of money and risk by Fed and FDIC, and you incent bad decisions