Market News

 November 18, 2014
Decline and fall of coal

 LOGAN, W.Va. --- In a dimly lit steakhouse that two years ago overflowed with customers, the only patrons on a recent Tuesday evening are the four local coal industry employees gathered around a Formica tabletop teaching a Tennessean about coal and the way things used to be.

The owner of a trucking business says his workforce has dwindled from 37 to four. A mine safety officer says he's lucky he wasn't one of the more than 100 people who got laid off at his company but, even so, he accepts that he's going to have to leave town too or end up unemployed. Two security staffers who work for the Tennesseean's company bicker about President Obama.

"It'll come back in about three or four years, once we get this asshole out of office," says one. "It always does."

The owner of the trucking company shakes his head.

"No," he says. "Not this time."

Environmental regulations, stoked by fears about climate change, are accelerating a long-term decline in demand for coal. Emerging economies such as China are trying to use less coal to reduce air pollution. Cleaner fuels such as natural gas and solar power, which is getting cheaper by the day, divert buyers away from coal. And markets and financial institutions, seeing the spread of regulations internationally, are starting to give coal the thumbs down.

It all means that coal towns such as Logan are in free fall.

Coal is important to everyone in this valley town of 1,779, which has lost 28 percent of its population since 2000. Nearly 31 percent of its inhabitants live below the poverty line. Restaurants are empty. Services industries, such as the one that once made tires for massive mining trucks, are no longer needed. The population of Logan County, founded in 1824, dropped from a high of 77,391 in 1950 to 36,743 in 2010.

But the devastation goes further than that. A fire tore through downtown a couple years ago, and none of the businesses came back. The school district can't keep teachers. Addiction to painkillers is rampant; in August, thieves tried to cut a hole in the roof of a local Rite Aid to steal prescription drugs.

Everyone in Logan has an opinion about why it got so bad. Most start with Obama and his environmental regulations.

Logan residents are used to slumps and minor rebounds in the coal industry, and some believe all that's needed is a new president. Many say Obama is targeting West Virginia because it voted Republican in 2008 and 2012. As evidence they point to the coal industry in Illinois, Obama's home state, which is booming. Coincidence? They don't think so.

"I think the government put a bulls-eye on us and tried to kill us," says Shawn Kiser, a 44-year-old mine equipment operator, at a state-sponsored meeting in Logan intended to place unemployed coal workers in retraining programs.

"We was the wrong color. That's why he killed us," Kiser says.

First the administration stepped up enforcement of mining safety regulations following the 2010 collapse that killed 29 miners at Upper Big Branch Mine in Raleigh County. Then, in 2011, the feds canceled a permit for mountaintop removal mining, a controversial method that blasts off peaks to expose coal seams, after it had been issued. Then new permits slowed to a trickle. Then came regulations to reduce mercury and other toxic chemicals. Washington says the mercury rules will save billions of dollars in medical costs, but the more stringent standards could idle many of the affected 1,100 coal and 300 oil electricity generating units at power plants.

Now the town faces the Environmental Protection Agency's carbon emissions limits for power plants. The new rules, America's most aggressive effort yet to slow climate change, aim to slash emissions to 30 percent below 2005 levels by 2030. By then, the Environmental Protection Agency says coal will generate 30 percent of the nation's electricity, down from 42 percent today. New power plants (not that anyone is looking to build them) would need to use expensive carbon capture and storage technology to meet the new standards. But the technology hasn't been used on a power plant anywhere without subsidies.

On top of all that, the Interior Department is expected soon to release a proposal to tighten restrictions on mountaintop mining.

Regulations are having a dire impact, but the Central Appalachian coal industry was in decline long before federal rules kicked in.

Production in West Virginia hit 156.5 million tons in 1924, when the industry employed 116,000 people, according to the West Virginia Office of Miners' Health, Safety and Training. Output stayed relatively steady for decades, but new technology cut the workforce to 68,000 by 1956, when output totaled 150.4 million tons.

The region's low-sulfur coal became a hot commodity when Congress passed the Clean Air Act in 1970. Power companies could not afford the pollution scrubbers needed to continue burning dirtier coal under the law's new standards, so cleaner coal from Central Appalachia, eastern Kentucky, southern West Virginia, Virginia and Tennessee was suddenly in demand. Once the easiest coal was extracted, production dipped in the 1980s before peaking again in 1997 at nearly 300 million tons. West Virginia's production of 182 million tons that year, just 17 years ago, was a record.

Wage costs rose sharply after that as the coal was harder to reach. And by then, power plants had installed technology that allowed them to burn dirtier Midwestern coal.

Decline accelerated when the shale boom began in the late 2000s. Plentiful supplies of natural gas pushed prices to record lows, making it competitive with coal. Power companies built cheaper generators to run on gas. Buyers for Central Appalachia's coal went away. Regulations have encouraged the shift from coal to gas. The writing was on the wall for electric utilities when Congress nearly passed a sweeping cap-and-trade bill in 2009. It passed in the House but fizzled in the Senate.

Coal employed 22,096 people in West Virginia in 2012, according to state records. That's up from 16,233 at the 1997 production peak. The figure shows that the struggles of West Virginia's coal country can't be pinned solely on the Obama administration.

"We've just been sitting back and saying, 'War on coal, war on coal, let's get rid of Obama, let's get rid of the EPA and everything will be all hunky-dory,' " says West Virginia Senate President Jeff Kessler, a Democrat from Marshall. "Well, I just don't think that's the case. I think there are other factors --- market factors and other things, labor costs, and international markets are driving the train."

America's coal industry now employs 80,030 people, according to the Bureau of Labor Statistics. That's down from 219,661 in 1978, the first year the Mine Safety and Health Administration began collecting statistics. In 2007, before Obama took office, the number was 100,011.

Many Logan residents acknowledge the grim trends. But they assign the lion's share of the blame to Obama, says Joe Reynolds, a counselor with the United Mine Workers of America. Reynolds tries to get unemployed mine workers into a job training program sponsored by the labor union and the state that is backed by a $7.4 million federal grant.

"Seems like everyone is down on Obama," Reynolds says, describing how jobless workers think when he first meets them, "which they've been led to believe is the root of the problem. It's just playing politics. The coal companies are playing the game." Blaming Obama makes it easier for coal companies when they close mines and fire workers, Reynolds says.

Most political donations from coal companies go to Republicans --- $3.3 million this cycle, compared to $150,000 for Democrats, according to the Center for Responsive Politics. The gap has been widening. In 2006, Republicans got $1.6 million from the industry while Democrats got $380,000.

Mine owners and employees have traditionally had poor relations --- the 1921 Battle of Blair Mountain, in which unionizing miners clashed with a private army formed by owners and the Logan County sheriff, killed 50 to 100 people --- but they have never been more aligned politically than they are now.

That's because to Logan, regulations from Washington seem to be an attack on the local culture and way of life. Many people have never lived anywhere else, and don't want to.

The White House and EPA point out that coal country was changing before recent regulations, but they concede that communities face difficulties.

"It's not going to get easier for those states that are heavily reliant on the coal industry to really not only put bread on their tables, but [also for] their communities. And I think we all recognize that," EPA Administrator Gina McCarthy said at a recent Washington gathering.

Since 2011, the federal government has given $42.5 million to West Virginia's community colleges and universities for job training efforts. In June, the White House awarded the state a $6.2 million grant to expand on-the-job training and counseling to move unemployed coal workers toward new jobs.

The Obama administration has appointed a liaison officer to coordinate these efforts but the White House refused repeated requests over several months from the Washington Examiner to speak to the liaison, even declining to give his or her name.

Natural gas producers would like to hire coal workers from Logan because they have the right skills. At a recent meeting for the UMWA retraining program, which drew more than 50 laid-off Coal River Energy workers and their spouses to the state office in Logan County, Wyoming coal mining company Cloud Peak Energy made a pitch for them to head out West to the state's Powder River Basin, where production is thriving.

But the beckoning call from Wyoming largely fell on deaf ears. "Coal miners are a different breed," says Brett Dillon, office director for the UMWA Career Center in Beckley. "Miners don't like to leave home."

Some progress is being made getting laid-off miners and mine service workers to join retraining programs.

The state wasn't making headway, but UMWA officials have been more successful by meeting people where they live. Spouses are eligible for the retraining program, too, as are dependent children.

More than half of the 600 people who have participated now have jobs, and many of the rest are still in training, Dillon says. But many others want no work but coal mining; there is a generational pride in the industry. They see it as showing grit. And it pays well --- if you have a job.

Some at the union meeting tell the Examiner that they used to make more than $80,000 a year. Most of the jobs for which they were being retrained --- welding, nursing, black-smithing --- would pay far less, though some, such as trucking, could pay more. The median household income in Logan is $26,679, so most coal workers would rather gamble on their jobs coming back than try to support their families on a lower wage.

"There's pretty much nothing in West Virginia that can replace coal mine wages unless it's a high-tech job with a college degree," Dillon says.

There has been a lack of imaginative thinking for several decades at the state level. West Virginia didn't save any of the revenue that coal generated when times were better. Nor did it try to diversify the economy. Kessler, the Senate president, says that if just 1 percent of the state's severance tax on coal had been saved since the 1970s, West Virginia would have $8 billion to work with today.

"We've been in a state of denial that [coal's decline] isn't happening and it's all out of Washington, and that if we scream a little louder it would all go away," Kessler says. "But I'm not sure that it would work out that way."

The state is trying to learn from its mistakes. This year it created a Future Fund that will put some revenues from oil and gas into a trust that will be used to build infrastructure and assist struggling coal communities south of Charleston, the capital. But deposits into that piggy bank aren't likely until 2019.

There's chatter in the southern part of the state about SCORE --- Southern Coalfields Organizing and Revitalizing the Economy --- which was announced in October. Modeled after a Kentucky program, it aims to use remediated mine sites that offer some of the state's few swaths of flat land to attract business and industry. The first meeting, held this month, brought a bevy of ideas ranging from honey production to solar energy development.

And the state is helping its workforce acquire the skills needed for new jobs. Chris Stadelman, spokesman for Democratic Gov. Earl Ray Tomblin, says the number of degrees earned through the state's community and technical colleges has increased 57 percent over the past five years.

When asked about what else the state can do, residents boast of the natural gas production up north. Then there's talk of tourism --- whitewater rafting has been a boon, but it's seasonal, as is the Hatfield-McCoy ATV Trail Logan created to attract tourists.

When discussing natural gas, it's clear that there is a wariness about betting on another energy resource. "A lot of people are afraid they're jumping from the frying pan into the fryer," says Mary Anne Hitt, a West Virginia native who directs the Sierra Club's Beyond Coal Campaign. "The state is really just needing to grapple with the fact that there's a very big change under way."

There are tough times ahead in the mountainous regions south of Charleston. People are loath to leave and have little education. Drive beyond the town line and there is no cellphone service. Roads are poor. And the school district can't lure teachers because, really, who would ever come to Logan?

"At this point, what do we have to attract them here? A couple rundown buildings?" asks Mark McGrew, vice president of the Logan County Board of Education who is an heir to what was an auto-body empire that spanned several Central Appalachian states. He's now closing one of his two remaining locations. The Logan shop will survive, for now.

The 42-year-old father of two has the difficult task of recruiting teachers. More than 30 have retired in recent years. Property values are falling as the community's fortunes slide, which in turn slashes funding for schools. The state recently passed a law mandating 180 days of instruction, intended to improve education in a K-12 system ranked 46th in the nation, according to a study by the Annie E. Casey Foundation, a Baltimore organization that focuses on poor children.

The school district's main goal, McGrew says, is to teach students a trade. Anything to prepare them for life outside of Logan, beyond coal.

"Coal is not coming back. We're all smart enough," McGrew says. "We don't cry the blues. We don't have to."

Ernest Collier Jr. is seated at the bar, sipping Crown Royale on the rocks. He's a burly man who turned 40 this month. And at this moment he is waiting for a potential buyer for his coal, which could help save his company from collapse.

Collier says he would consider moving out of Logan. He stuck around the town because he was an only child and he thought his parents would need him. He has five children of his own now, and two grandchildren. All live in Logan.

One of his grandchildren has spina bifida, which is prevalent in the area, mainly because of poor prenatal nutrition. There are many bad health habits in coal communities, says Jamie Jeffrey, a Charleston pediatrician who runs KEYS 4 Healthy Kids, a group that promotes healthier living.

Jeffrey says she has seen a shocking rate of obesity and chronic disease in residents of coal communities, because of poverty, few grocery stores with fresh fruits and vegetables and a culture that does not encourage exercise. Even the Walmart in Logan is miles from downtown, so those without a car can't easily get to it.

"Because the obesity and chronic disease rate is so high ... the parents' perception is totally skewed because everyone else around them is the same," Jeffrey says.

Jeffrey just recently diagnosed her youngest-ever patient with type 2 diabetes. He's 7 years old.

"I keep telling myself I'm not going to be surprised anymore," Jeffrey says. "But it's just not going good."

Health problems cost the state millions. A 2013 study in the American Journal of Public Health Research said medical costs directly related to obesity in the state hit $125.5 million in 2009, a $51 million increase from 2001. Total costs associated with obesity hit $1.8 billion in 2009, a $704 million jump since 2001. A state report projected 46 percent of West Virginia adults would be obese by 2018 if current trends continued. Some 34 percent of the population is obese, higher than any state except Mississippi.

Myriad health problems come from working in mines. Black lung and heart disease are primary killers, but asthma and other chronic illnesses take their toll. The cost across Appalachia is $74.6 billion, while mining contributes only $8.08 billion to the region's economy, according to a 2011 study in the Annals of the New York Academy of Sciences.

With more coal miners losing their jobs and benefits, some are concerned that those who don't qualify for Medicaid won't sign up for the Affordable Care Act, which is politically toxic here.

"There's been so much bad publicity about Obamacare, the Affordable Care Act, that it's fear of the unknown," Jeffrey says. She holds out hope that residents will come around, noting the nearly 23,000 children enrolled in the federal Children's Health Insurance Program.

But with residents losing healthcare coverage, they hesitate to seek treatment for injuries or illnesses. That keeps many out of the workforce. Worse yet, painkillers, prescribed or illegal, are readily available and have people hooked. Many fail their drug tests and lose job offers. The state has the highest rate of fatal drug overdoses in America, 28.9 per 100,000 people, according to a 2013 report by the nonprofit Trust for America's Health.

"We've got to get our drugs cleaned up. We have an epidemic here," says state Del. Rupie Phillips, a Democrat. "It's pathetic."

Phillips is driving his black Chevy Tahoe through the autumn-hued mountains of southern West Virginia. His backseat is filled with the trappings of campaign life: dress shoes, a hard hat from his job selling coal, the two propane tanks he picked up for a barbecue he's hosting for the fire department.

Everyone knows Phillips. What makes him a Democrat is anyone's guess --- he's "for Adam and Eve, not Adam and Steve," he's against "government handouts," and his campaign card states simply "Guns Coal Jobs God."

He was initially skeptical about hosting the Examiner. "We've had some reporters want to come down here and go in the mines, and then it turns out they were tree-huggers," Phillips says during an initial phone call.

Driving by a coal-processing plant, he chats with a colleague about the election ands asks for his vote. His colleague needles him and says he'll consider it if Rupie "leaves the dark side."

Is it getting harder to run as a Democrat in West Virginia? Is it all about Obama?

"Oh, absolutely," says Phillips.

West Virginia had not sent a Republican to the Senate since the 1950s until this month, when it overwhelmingly elected Rep. Shelley Moore Capito. The tide has turned so strongly that Democratic Rep. Nick Rahall, who represented Logan for 38 years, lost his race to Evan Jenkins, a former Democratic state senator who switched parties in 2013 to run as a Republican.

Much of the political shift is the result of a cultural change in the Democratic Party. People here don't like the national party's support for gay marriage and gun restrictions. Democratic Sen. Joe Manchin, a former governor who was once revered, lost respect here after he introduced legislation to require more background checks for gun buyers.

Former Vice President Al Gore's presidential run in 2000 was a watershed in southern West Virginia. The area voted for Bill Clinton but has voted for the GOP ever since, even though it's hard to find a registered Republican.

Gore's climate crusading still riles people. They don't believe in human-caused climate change or that the United States could do anything to stop it.

"Coal, along with any industry, is a contributor. But it's all cyclical," says McGrew, the auto shop owner.

Places such as Logan have nothing to fall back on if the coal industry dies. They would become ghost towns. Some hold out hope that carbon capture and storage technology will arrive in the nick of time to save them, but it requires federal money because power and coal companies' profit margins are too thin to pay for research and development.

Politicians have found whipping boys rather than make hard choices. "I'm a salesman for coal," Phillips says of his role as a legislator. "I think all coal companies and power plants are environmentally responsible. But there are accidents. I mean, come on, NASA has accidents."

People in Logan, much like the state government, don't know how their community can survive without coal.

"I hear the opposition say, 'Why did you think coal was going to last this long? You should have been planning.' But it's hard to plan when you're making so much money," says Diane Barnett, a business owner in Logan.

Barnett is waiting on a call that will determine whether her mining business will close for the year. In June, she laid off 17 people at her mining service company. She's speaking at her near-empty pizza parlor, Gatti's, which is at the far corner of a relatively new strip mall that includes a Walmart Supercenter.

"We built this too big," Barnett says, surveying the empty dining room of 15 tables built to serve birthday parties that no longer come here.

Barnett has had enough of pouring money into the town. Her newest venture is building a movie theater in Lewisburg, a couple hours north, after the one in Logan, also in the strip mall, proved a surprise success.

"We probably won't be here in five years," she says, "The only thing that will be here are seniors and people on welfare."

For perhaps the first time in the town's history, parents are telling their children to leave when they get a chance.

"I want them to have nothing to do with something as volatile as coal," McGrew says of his children.

"I lived through the Depression," says Nora White, 76, sitting on her porch in a light blue bathrobe, smoking a cigarette. "The first one."

Is this the second?

"Yes," she says, bowing her head. White is one of 12 in her family. Her father was a miner who died when she was 19. She has lived in the area all her life, except for a couple of years working in factories in Cleveland.

Her daughter, 33-year-old Shannon Damron, said the street was bustling in 2001 when she moved in. Now there are only five houses with people in them. At night, crack cocaine addicts and prostitutes walk the street.

But Logan has not entirely lost its community feel, and it keeps people sticking around.

For many, it's the only home they have known. Damron's husband has been hired and fired so many times that it's not worth counting anymore. He got laid off again at Barnett's mining repair shop a couple weeks ago.

"You have miners taking jobs at McDonald's now," Damron said.

Downtown is a cluster of fast-food joints, a pair of sit-down restaurants, a gun shop, a thrift store, a cafe that bills itself as "The Classiest Place in Logan," and McCormick's, the furniture store and town staple.

But there's no industry. The head of the Logan County Chamber of Commerce says the only real business these days comes from the ATV trail. Nearby counties are already deserted. People in Charleston say Logan will be too, soon.

"A lot of things closed down here," Damron says.

White flinches and adds, "It makes me sad."