By Clark Williams-Derry

February 13, 2019 - It’s been another disappointing few months for the U.S. coal industry. And it’s been especially grim for Western U.S. coal companies hoping that Asian exports will revive their flagging prospects. Here are some highlights—or perhaps lowlights—in the ongoing saga of King Coal’s demise:

Fraser Surrey Docks coal project bites the dust. The dim prediction for West Coast coal exports grew even gloomier after the Port of Vancouver, BC, canceled its permit for the proposed Fraser Surrey Docks (FSD) coal terminal.

First proposed in 2012 at the height of the Pacific Rim coal bubble, FSD would have shipped up to 8 million tons of Powder River Basin coal to Asia each year. But much like the coal export proposals in Washington, Oregon, and California, FSD was walloped by a one-two punch: local opposition spiked just as Asian coal prices collapsed. The project languished in limbo for years. Finally, the Port noticed that the project was out of compliance with its original permit, which required “substantial progress on construction…prior to November 30, 2018.” FSD’s president expressed “surprise” at the permit revocation. To me, his reaction hints that he was no longer tracking the coal project that closely, having turned his attention to more lucrative and less controversial commodities.

Even though FSD died with a whimper rather than a bang, its demise marked a significant milestone. Coal export foes have now notched a perfect 9-0 record against new coal terminals between San Francisco and Vancouver, BC. At some projects, the proponents simply walked away. At others, regulators have denied key permits. Two projects—one in Oakland, and a much larger one in Longview, Washington—are still tied up in lawsuits over permit denials. Yet for the time being, the combination of lousy economics and fearsome opposition has completely halted an industry that once looked like an unstoppable juggernaut.

Cloud Peak inches towards bankruptcy. Coal giant Cloud Peak Energy—one of just two Powder River Basin coal companies that still exports coal to Asia—was already on the ropes last October after reporting collapsing sales and sinking profits. Things have only gotten worse. The company’s stock fell below $1 a share in November and stayed there since, prompting the New York Stock Exchange to threaten to de-list their stock. The company’s management team cut retiree health benefits to trim costs. It announced a “strategic alternatives” review—financial jargon for trying to sell a company’s assets to stave off bankruptcy. Then the company fired its old team of strategic advisors and hired a new one, suggesting that the first team was striking out. The company also adopted a “poison pill” policy to prevent hostile takeovers. Meanwhile, Cloud Peak’s bond prices have collapsed to a fraction of their face value. And the company hasn’t even announced when—or even whether—it will release fourth quarter financial results.

These signs point toward an imminent bankruptcy. But perhaps the cruelest irony here is that amid this financial collapse, the company has given massive retention bonuses to top executives:

CEO Colin Marshall, for example, will receive a bonus of 150 percent his annual base salary. Chief Financial Officer Heath Hill, Chief Operating Officer Bruce Jones and the general counsel, Bryan Pechersky, will receive bonuses of 115 percent of their salary. Two other executives will receive bonuses equal to 100 percent of their base salary.

Cloud Peak’s managers have accumulated an astonishing record of failure. The company raised a billion dollars from its 2009 IPO: $433 million in stock and $600 million in bonds. Since then, the company has merely chipped away at its mountain of debt, while giving essentially nothing to shareholders. Now that bankruptcy looms, stockholders face a total wipe-out, and bondholders could get mere pennies on the dollar. And through it all, the company’s top brass has enriched themselves handsomely. The recent retention bonuses are just the latest example of their largesse towards themselves, at the expense of investors and retirees.

Pacific Rim coal prices sink again. Last October, Cloud Peak admitted that its export business would earn little in the fourth quarter “unless there is a near term increase in pricing” in Asian coal markets.  But the opposite happened: Indonesian coal prices fell to their lowest level since late 2016. As a result, we can expect Cloud Peak to report further losses from their export division—revealing just how risky the coal export business really is.

New renewables are now cheaper than existing coal. The latest Levelized Cost of Energy Analysis from consulting firm Lazard confirms that the cost of wind and solar fell yet again in 2018. In fact, the cost of wind and solar power has fallen so far, so fast, that it’s often less expensive to build new renewables than to keep existing coal plants running. Meanwhile, the cost of battery storage continues to fall, making fossil-free power ever more affordable. These trends spell bad news not only for coal but also for gas power plants, which will increasingly face competition from competitors who aren’t subject to the ups and downs of gas prices.

“Nobody is making any money” in the Powder River Basin. So says the CEO of coal company Ramaco Resources, which was pursuing a new PRB mine as recently as 2017. I don’t think he’s quite right. Some PRB mines are still squeezing out a modest profit. Still, even Peabody Energy, the biggest coal company in the nation’s biggest coal mining basin, admits that it will trim production by 10 million tons at its flagship North Antelope mine due to shrinking profits and rising costs.

Another PRB giant, Westmoreland Coal, filed for bankruptcy last October. The company tried to auction off its assets but failed to attract even a single qualified bid, though a nursing home executive turned coal mogul with a sketchy track record is still hoping to put together a deal to buy the company’s Kemmerer mine in Wyoming. The financial fallout of Westmoreland’s bankruptcy is ballooning. The company has petitioned the bankruptcy court to renege on its retiree obligations, and its financial implosion now poses a risk to the power plants it serves, which might have to shut down if Westmoreland raises prices.

So yes, things are a bit of a mess in the PRB. And they’re set to get messier still.