Whitesburg KY

Western operators worry new regs will slow expansion

Working beside his brother when he was killed in a hard rock mine near Silverton some years back never jaded George Davidovich on the sacrifices and benefits of doing hard time in Colorado’s underground mines.

Mining, particularly coal mining, has been a family tradition since his grandparents worked the rich West Virginia coal seams after emigrating from the “Old Country” nearly a century ago, he said.

“Coal mining has been good to me,” said Davidovich, the maintenance coordinator for Oxbow Mining’s Elk Creek Coal Mine in Somerset, sitting in mine manager Randy Litwiller’s office Thursday morning.

The office looks onto a 200- ton stockpile of coal, which grew larger by the minute as black chunks fell like ground pepper from a stacking tube above. By the time Davidovich left for the day, a whole train load of the stuff had been wrested from the earth.

Davidovich makes sure all the mine’s inner workings and equipment comply with the law and will pass muster with federal inspectors. So, when it comes to the future of the Elk Creek Mine, Colorado’s mining industry and regulations affecting both, he has a well-informed perspective.

“I foresee a lot of new laws,” he said. “Smaller companies will be forced out because of all the new laws.”

Sit down with Litwiller or Oxbow President James T. Cooper and they’ll tell you they worry government bureaucrats and environmentalists will use climate change and last month’s Crandall Canyon Mine disaster in Utah, which left three rescuers and likely the six trapped miners there dead, as reasons to impose new regulations and environmental laws on an industry Cooper and Litwiller said is already responsible enough.

A host of issues, particularly the potential for higher coal severance taxes and market changes because of environmental concerns, are forcing Colorado’s coal industry to rethink expansion plans and outlook for the future, industry insiders say.

More than 35.4 million tons of coal were produced in Colorado in 2006, with employment at the state’s 10 mines reaching 2,131 workers by the end of May, according to Colorado Division of Reclamation, Mining and Safety data.

Coal production in Colorado surpasses that of Utah, which is expected to produce 26.3 million tons of coal in 2007 with 2,041 employees, according to the Utah Geological Survey.

“I think coal will be the backbone of the Colorado electric grid for decades” and will remain America’s primary source of electric energy even though it’s one of the greatest contributors to global climate change, said Randy Udall, director of Aspenbased Community Office for Resource Efficiency, an ardent promoter of renewable energy and carbon capture technology for coal-fired power plants.

But there is a tremor in Colorado’s coal industry.

Few increases in coal production are expected in the immediate future. Severance taxes have the industry questioning its place in Colorado.

Even if the industry doesn’t get smaller in Colorado, it’s not likely to get bigger, Colorado Mining Association President Stuart Sanderson said.

“Mines have been expanding production in recent years,” he said, “but we still anticipate that the bulk of production is going to come from existing mines.”

Colorado coal mines have the potential to produce 40 million tons per year, but they still haven’t reached that figure, he said.

Some of the region’s major coal mines, such as the Elk Creek Mine, Rio Tinto’s Colo Wyo Mine north of Meeker and the smaller New Horizon Mine near Nucla, either have definite expansion plans or are seriously considering it.

But some mines’ expansion plans are not likely to be dramatic and may be affected, Sanderson said, by Attorney General John Suthers’ July 6 opinion that the Colorado Department of Revenue may consider severance tax increases for the coal industry without voter approval and without violating the Taxpayers’ Bill of Rights.

State law requires a 1 percent increase in the coal severance tax rate whenever the producers’ price index rises by 1.5 percent. But because the law was enacted before TABOR became effective in 1992, Suthers wrote, TABOR would not be violated by the tax increase, and a vote is not required.

The state imposed a coal severance tax rate of 54 cents per ton in December 1992 and kept that rate “until further notice” because it was awaiting a decision about whether the increases are subject to TABOR restrictions, according to a 1993 Office of Tax Analysis memorandum quoted in Suthers’ opinion.

He called the state’s failure to impose the tax increases since the end of 1992 “erroneous.”

The state considers the amount of coal severance tax money each county receives privileged information because the tax is collected by each producer, Colorado Department of Revenue spokesman Steve Tool said. Revealing tax money received by a county containing only one producer would reveal exactly what that producer paid in severance taxes, which, he said, is confidential information.

The coal severance tax will force producers to raise their prices, something the industry is particularly sensitive about, Sanderson said.

“The industry is concerned overall about what costs may result from the permitting consideration that may be given to mandates for greenhouse gas reduction” and increases in coal severance taxes, he said. “The companies are going to be very, very cautious.”

The bottom line for the coal industry, Sanderson said, is simple: “The fact is, companies can mine coal in Colorado, but they can also mine coal in other states.”

Sen. Jack Taylor, R-Steamboat Springs, a former coal miner, said a higher coal severance tax could be a “killer,” particularly if the state decides to try to recoup the severance taxes it failed to collect during the past 14 years.

“These (coal) contracts are won on pennies,” Taylor said. “They’re based on a cost-per- British Thermal Unit basis. Wyoming coal is lower Btu, and Colorado coal is higher Btu. It’s very competitive, and any kind of increase would be detrimental to the coal industry in Colorado and put some of these coal companies out of business.”

When coal-fired power plants install “scrubbers” to reduce climate changing carbon emissions, Cooper said, it’ll be cheaper for them to use a lowerquality coal than the low-sulfur kind they buy from North Fork Valley coal mines.

“Down the road, North Fork Valley coal will become less special,” causing the Elk Creek Mine’s Eastern Seaboard customers, such as the Tennessee Valley Authority and utilities near Boston, to buy coal mined closer to home, Cooper said.

“That is a ridiculous assertion,” Wilderness Society Assistant Regional Director Steve Smith said. “The comparative expense of using clean coal compared to trying to get dirty coal to have fewer emissions is of such a gap that Colorado coal will always win out. If you’re trying to clean out a power plant, you’ll have to do some scrubbing, and you’ll have to do less scrubbing if you use clean coal.”

The coal industry has to get serious about attacking global warming, he said, and using high-sulfur coal is no way to do that.

Whatever the trends affecting Colorado’s low-sulfur, high-Btu coal may be, the coal severance tax is the industry’s big concern right now, Cooper and Litwiller said.

Higher severance taxes mean higher coal prices, making Colorado coal even less attractive to out-of-state utilities, Cooper said.

Such taxes could directly affect Oxbow’s expansion plans in the North Fork Valley, Litwiller said.

“An increase in taxes could make a good project a bad project, or at least make you think about it, right? ” he said.

Oxbow expects to produce coal at its current rate of 6 million to 6.5 million tons per year for the next five or 10 years with plans to explore for additional coal reserves in the future, Litwiller said.

“Will it be in the North Fork?” he said. “It may be somewhere else in Colorado.”

The other North Fork Valley coal companies – Arch Coal and Bowie Resources – say they, too, have no plans to increase their production capacity.

Arch Coal, which operates the West Elk Mine, is moving into a new coal seam and expects to continue producing about 6 million tons of coal annually, but no expansion is planned, spokesman Greg Schaefer said.

He said the company is “keeping a close eye” on how Suthers’ opinion will affect the coal industry because Arch Coal fears a higher coal severance tax could make West Elk coal less marketable out of state.

Rio Tinto, which operates the ColoWyo mine in Moffatt County north of Meeker, scaled back its expansion plans for the mine in recent months, but mine Manager Keith Haley said in May that the company will soon begin expanding onto land adjacent to the mining area.

The company will be spending $50 million to expand the Colo Wyo Mine, which produced more than 6.3 million tons of coal in 2006, into Rio Blanco County next year, Haley said at the “Fueling Thought” energy symposium in Craig.

The company may expand again into a “column pit” five miles west of the mine after 2017, he said.

Nonetheless, the ColoWyo Mine has no plans to increase production and could “slide back,” he said.

“Rio Tinto, they’ve taken this severance tax issue extremely hard,” Cooper said. “I’m not sure why.”

Company spokeswoman Heidi Lowe said Suthers’ decision did not address retroactive collection of coal severance taxes, and it is too early to comment because too little information is available.

The New Horizon Mine near Nucla also has expansion plans, but no intention to increase production, manager Lance Wade said.

The mine supplies about 420,000 tons of coal per year to a Tri-State Generation and Transmission Association-owned coalfired power plant near Nucla, the mine’s only customer.

Wade said the plant is operating at full capacity, and Tri-State has no plans to increase electricity production in the region.

The mine’s possible expansion will ensure it has the ability to supply the same amount of coal annually to the power plant for the next 20 or 30 years, he said.

While some in the industry carefully consider expansion plans, others aren’t shy about showing their vitality.

Central Appalachia Mining, or CAM, which is proposing the Red Cliff Mine, runs the McClane Canyon Mine north of Mack, and production there is expected to ramp up considerably, said Colorado School of Mines civil engineer Steve Dmytriw. McClane Canyon produced 266,561 tons of coal in 2006, according to state data. A mine representative did not return phone calls seeking comment.

CAM also is proposing to open the Red Cliff Coal Mine, which the state expects to produce up to 2 million tons of coal annually. The mine could one day be linked by a railroad spur to Union Pacific’s main rail line if the federal and state governments give the mine a green light.

The Red Cliff Mine would extract coal from two federal coal leases about 11 miles north of Mack and one and a half miles east of Colorado Highway 139. The accompanying railroad spur would traverse more than nine miles of Bureau of Land Management property and about five miles of private land.

Both of CAM’s mines, once operational, have the potential to produce a combined total of about 4 million tons of coal per year in the Grand Valley, Dmytriw said.

Government approval of the Red Cliff Mine is more than a year away. The BLM expects to issue a final decision on an environmental impact statement for the mine in October 2008. A draft of the statement is expected in April.

East of the Continental Divide, some companies have filed state permit applications to open coal mines in a region where there are none, said David Berry, director of the Colorado Division of Reclamation, Mining and Safety’s coal program.

Northfield Partners filed a permit application with the division in 2006 to open an underground coal mine in Fremont County near Florence, while other companies have expressed interest in coal mining in Las Animas County near Trinidad, Berry said.

At the Elk Creek Mine, miners say they’re confident the industry is here to stay regardless of federal scrutiny of the coal industry and greater concern about how coal burning may be contributing to climate change.

Environmentalists try to threaten the coal industry, “but people with common sense aren’t listening to them,” Elk Creek Mine purchasing agent Len Wardlaw, of Delta, said. “It doesn’t affect me.”

Davidovich said he’s confident that if he wasn’t planning to retire, he’d still have a job at Elk Creek in 10 years.

“I’m hoping it’s because we’ve got people who aren’t totally against mining,” he said.

Distributed by The Associated Press

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