Murray Energy Bankruptcy Still Casts Shadow on Coal's Economic Viability
By Kathiann M. Kowalski
June 15, 2020 - New developments suggest Murray Energy’s bankruptcy case could soon wrap up, but they don’t resolve questions about how long coal can hang onto its shrinking market share in the face of competition from natural gas and renewables.
“Murray Energy has gone bankrupt because the economics of coal are not competitive with renewable energy,” said Howard Learner, president and executive director at the Environmental Law & Policy Center, one of the environmental claimants in the case. “Coal is losing market share. Renewable energy is gaining market share because the economics are better.”
Creditor and competitor CONSOL Energy has withdrawn objections that could have led to the case being converted to a liquidation case, which would mean some mines could be put up for sale piecemeal. Details are unclear, but the developments appear to breathe new life into the case after Murray Energy’s lawyers effectively put the brakes on the company’s reorganization plan on June 4, just one day before any objections to it were due.
Nonetheless, some issues remain. On June 5 the U.S. government and attorneys for various state agencies gave notice that they wouldn’t be bound by that plan’s releases anyway. Unless those issues are resolved, the upshot could be a huge environmental liability for the reorganized business.
Murray Energy began its bankruptcy case on Oct. 29, seeking to restructure the company in the face of roughly $2.7 billion of debt plus up to another $8 billion for current or potential pension and benefit obligations. Liquidity problems in the face of a declining market left the company unable to meet current payment obligations.
A reorganization case under Chapter 11 of the Bankruptcy Code aims to restructure a company and resolve its creditors’ claims in a way that lets the company emerge from the case as a viable business. Creditors generally get some compensation, which can include cash, stock, bonds and new debt obligations from the reorganized company. And the company gets a relatively fresh start.
In contrast, a liquidation case under Chapter 7 of the Bankruptcy Code would seek to sell off all a company’s assets and end its legal existence. Sale proceeds would be distributed among the creditors. Generally, various groups of secured creditors get paid before any unsecured creditors, and different groups of stockholders are paid last.
“We cannot comment at this time,” said Jason Witt, Murray Energy’s assistant general counsel, in response to questions for this story.
Winners and Losers
The financial problems of Murray Energy and other coal companies largely reflect shifts in the overall energy market, where natural gas and renewables are winning out over coal.
Nearly 92% of U.S. coal consumption was in the electricity sector last year. By then, that sector’s use of coal was down 48% from its 2007 level, numbers from the U.S. Energy Information Administration show. Overall coal consumption was down 50%.
Most of the shift was to the natural gas sector. From 2007 to 2019, though, renewable energy consumption grew by roughly three-fourths, the EIA data show.
By 2019, the levelized cost of new wind or solar power was cheaper than the costs to keep running most coal-fired power plants, an analysis by Vibrant Clean Energy and Energy Innovation Policy & Technology found. And U.S. renewable energy generation surpassed coal last year, the EIA reported on May 28.
Environmental advocates see the accelerating transition to clean energy as good news for Americans’ health, the climate and the environment.
“Regardless of whether Murray Energy comes out of bankruptcy in a way that allows them to continue to operate coal plants, renewable energy is cheaper than it has ever been and is making dirty, expensive fossil fuels obsolete,” said Miranda Leppla, vice president of energy policy for the Ohio Environmental Council.
But the coal industry’s decline also leaves behind some losers, in particular workers and the communities where they live.
“We want to go back to being productive and working safely and making a livelihood and money for our family and our communities,” said Rick Altman, vice president for the United Mine Workers of America District 31, based in Fairmont, West Virginia. Union workers had been told that as long as the case stays in Chapter 11 for a reorganization, “things should stay as normal as normal can be during a bankruptcy.”
Nonetheless, many workers worried when notices of possible layoffs came out in late May.
“Yeah, they’re worried. You’d have to be crazy not to be,” Altman said. “Because there’s only so many jobs.” For his viewpoint, this past mild winter was a big problem. “I believe the one thing that seems to be getting overlooked is if there’s not a lot of coal being burned, there’s a lot of coal in the stockpiles,” and less need for more of it.
The coal industry has also been hit hard by the current coronavirus pandemic, exacerbating the need for a just transition for workers and communities left behind as coal’s market has shrunk.
Murray Energy has not cited the transition to renewables as a factor for its bankruptcy. Yet its prior actions seem to reflect concerns about competition.
The company’s March 2017 action plan asked the Trump administration to eliminate the Clean Power Plan, reverse the U.S. Environmental Protection Agency’s endangerment finding for greenhouse gases that drive climate change, and get rid of the production tax credit for solar and wind energy.
The company also wanted rollbacks of additional regulations that the U.S. EPA had determined were necessary to protect human health and the environment. If ultimately allowed, those rollbacks and other measures advocated by the company would arguably shift substantial costs of air pollution back onto the public. Pollution from power plants impacts people of color and low-income populations the most, researchers at Stanford University and the University of Washington reported last year.
Company founder Bob Murray also praised the Trump Administration’s 2017 plan to give preferences to coal and nuclear power under the guise of “fuel security.” The Federal Energy Regulatory Commission rejected the proposed Department of Energy rule, although the industry continues to raise similar arguments.
Beyond that, Murray Energy has paid out nearly $1 million since last August to one of its law firms that has also represented opponents in wind energy cases, according to a review of bankruptcy court filings by the Energy and Policy Institute.
Murray Energy has admitted funding various legal and expert expenses for opponents in the Icebreaker lake wind case in Ohio. The same law firm has also represented intervenors and made filings on behalf of a pro-coal group in other wind energy cases.
Murray Energy still needs to resolve issues with various government parties, and others may have objections to the company’s reorganization plan once amended documents are filed.
“The Governmental Entities” — federal and state environmental agencies — “are optimistic that they can resolve through negotiations with the Debtors all remaining issues regarding Plan provisions,” said Sarah Wickham, spokesperson for the Ohio Department of Natural Resources. The Ohio Environmental Protection Agency and ODNR’s protective proofs of claim relate to costs for complying with various Ohio EPA permits and certifications, including water quality mitigation matters and wetlands permits, as well as ODNR requirements for mine reclamation and well plugging, she said.
“If the Sale of Debtors’ assets includes the transfer of all Ohio EPA and ODNR Permits and Certifications which is currently expected, the buyer will be responsible for compliance with all terms and conditions,” Wickham added.For now, the bankruptcy court has a telephonic hearing scheduled for June 19.