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Oil and Gas
Thu December 12, 2013
Future of Coal Uncertain as Tennessee Valley Authority Cuts Production
Originally published on Wed December 11, 2013 10:56 pm
It’s been a rough season for the coal mines of the North Fork Valley. Last week, Oxbow’s Elk Creek Mine in Somerset laid off another 115 workers, bringing the total number of jobs cut at that mine this fall to over 250.
Even more layoffs could be on the way. A major eastern utility is closing power plants and buying less Colorado coal. That could impact production at Arch Coal’s West Elk Mine, just up the road from Somerset.
The blare of the coal trains as they head West through Paonia signals the beginning of a very long journey. From here, the trains that serve the valley’s three coal mines head across the Rocky Mountains to their final destination: the Southeastern United States.
There, much of the coal is burned in power plants owned by the Tennessee Valley Authority, the country’s largest public power company.
The TVA has been a large buyer of North Fork coal since the early 1990s. Back then, power plants around the country began buying low-sulfur Western coal to meet new requirements under the Clean Air Act. But now, like many utilities, the TVA is beginning to cut the amount of electricity it gets from coal.
"Coal in the ‘70s was as much as 70% of our generation mix, and we’re now at about 40%," says Duncan Mansfield, a spokesman for the TVA.
And they’re trying to cut that number even further. Eventually, Mansfield says the TVA will only get 20% of its power from coal. Cheap natural gas and stricter environmental regulations are driving the shift. Plus, the TVA’s coal plants are old and expensive to maintain.
"We have 11 coal plants and the average age is 51, which isn’t too old for a person, but it is for a power plant," Mansfield says.
Since TVA is cutting its coal generation in half, it will buy less coal, especially from Colorado.
"The primary reason is the delivered price," says Mansfield, "the ability to switch to lower cost basins in Powder River and Illinois Basin."
In other words, Colorado coal is too expensive. Surface mines like those in Wyoming’s Powder River Basin can sell coal more cheaply than underground mines like the ones in the North Fork Valley. Wyoming and Illinois producers have another advantage, too: they have fewer mountains to cross. That’s according to industry analyst Bob Burnham.
"Getting the coal from, say, Somerset to Denver, it’s an expensive haul," he says. "It costs more per mile."
The West Elk Mine in particular sells a lot of coal to the TVA - at times, over half of what it produces. But West Elk’s TVA contract expires at the end of this year. Arch Coal, which owns the mine, won’t say whether it has been renewed.
With Oxbow’s Elk Creek mine shutdown due to an underground fire, locals are worried about the future of coal in the valley.
Erin Chartier works at Kut & Klip in downtown Paonia, and says people are scared.
"I just know a lot of people aren’t getting their hair done and stuff until they know they have money coming in," she says. Any problem at the mines affects her, too.
"A majority of my clients, their spouse works there or some of the women work there," says Chartier. "So it’s a huge thing."
This isn’t the first time the local mines have laid off workers. In the 80s, hundreds of people lost their jobs when the coal industry busted nation-wide.
Brad Harding is a former coal miner who is now the president of First Colorado National Bank in Paonia. He experienced the lay-offs as a young boy, when his school class of 60 kids shrunk as miners’ families moved away.
"We lost a few of our brightest and best students and some of our best athletes," he says, "and our class never really recovered in size after that layoff."
"You didn’t have to be a rocket scientist to know this place had been devastated," says Ed Marston, a former High Country News publisher who also owns a few commercial properties in Paonia.
He remembers a saying that captured the feel of the town at the time, with its empty homes and shuttered businesses: "happiness is Paonia in your rear-view mirror."
This time around, both men think the layoffs will affect all of Delta County, not just Paonia.
"The majority of the coal miners used to live right here in Paonia," says Harding, "but over the last 20 years as I mentioned most of those guys live down valley, as far away as even Grand Junction and make the commute every day."
Whatever happens in the North Fork Valley, energy analyst Bob Burnham says Colorado coal faces an uncertain future.
"We’re in an over-supply situation in the U.S.," he says.
"The utilities know there’s somebody out there who can sell them the coal. The mining companies are scrambling to get their share of the business. And there’s no guarantee that they will get it."
Like many people in the valley, Brad Harding is hopeful the area will weather the changes in the coal industry. He thinks a more diverse local economy would help.
"I understand we may be in a transition phase and hopefully the good days are ahead for the valley as well. And for all those employees and families affected by it, I give them my absolute best."