Sharpe: COAL! It was the reliable base of this region's economy

Farmington Daily Times
George Sharpe, Merrion Oil and Gas investment manager

If you read Tom Dugan’s book, “GAS!” you might conclude that Farmington is an oil and gas town. That is an understandable misperception. Certainly, over the last 60 years, the local economy has been significantly affected by the boom and bust cycles of the oil & gas industry. But hidden under the rise and fall of the economic sea level, so to speak, has been the constant contribution of the coal industry. This is the story of that contribution and the sobering effect that the demise of that industry has had and will continue to have on the economic well-being of the community.   

Yes, since the plants were built and expanded in the 60’s and 70’s, San Juan County has been coasting blissfully along, bobbing up and down with the repetitive boom and bust cycle of the oil and gas industry. Meanwhile, the coal industry kept its head down and kept plugging away, day after day, year after year, providing a base for our economy that few appreciated. Until now. As the base has started to erode, suddenly it has our full attention.

Just how big is the impact? In 2013 before any stacks at either plant had been shuttered, BHP, APS, and PNM collectively employed 1,813 workers (statistics from Four Corners Economic Development). At an average salary of around $86,000, that represented $156 million a year in payroll alone. At that time, the plants and mines represented over 20 percent of the total tax base for the County. In addition, over the years, the industry has paid hundreds of millions to other local contractors for supplies and services, not counting the hundreds of millions spent to continually upgrade the pollution controls at the plants. 

The Historic Base Load
It is hard to put the numbers above in perspective compared to the total economic contribution from all other industries in the County. A pretty representative indicator of economic impact can be inferred by comparing the amount of money donated to San Juan United Way over the years by the various industry segments. Those numbers are plotted for the last 10 years in the graph below.   

Annual San Juan United Way contributions, listed by industry.

The mines and the power plants are clearly the base load for the County. Over that 10-year period, the coal industry donated an average of $1.51 million per year, or 54 percent of the total. Meanwhile, the oil and gas industry averaged right at $500,000 per year, only one third of that donated by the coal industry. All other industries combined (medical, banking, retail, education, manufacturing, etc.) averaged just below $800,000 per year, or right at half of the coal industry. There is no doubt that coal is, or was, the king of the economic mountain.

As we speak, the manpower at the two plants and the associated mines is now one third less than in 2013 at 1227 and dropping. Correspondingly, donations from the coal industry dropped to $940,000 in 2016, or 38 percent less than the 10-year average. Does a drop in the base industry affect other industries? Absolutely! In 2016 the “other industry” category gave $454,000, down 43 percent from their 10-year average, even MORE than coal is down. When employees lose their jobs and/or move away, they no longer eat in our restaurants, shop in our stores, or send their kids to our schools, and consequently we have less to share with the community. The loss of the coal industry affects everybody in some way.  

Interestingly, those most affected by the trends are the poor and the needy. Those people don't move away. In fact, as the economy continues to degrade, their numbers will increase, probably in direct proportion to the drop in funding needed to help them in their situations. At the Boys and Girls Club of Farmington, for example, we are budgeting $52,000 from United Way for 2018, down more than 60 percent from the peak of over $130,000 back in 2012. In the meantime, our average daily attendance is up over 40 percent in the last three years. So don’t let anybody tell you that the coal industry is not good for the common man 

The Future

Unfortunately, the bleeding is not over. PNM just shut down two of their units in December, which will further reduce manpower at the plant and the mine that feeds it. Even more concerning is the complete shutdown of the PNM plant scheduled for 2022.  
If and when that occurs, there will be one remaining leg on the stool (APS at only two units) that has held us up for all these years. I know our county leaders are frantically working to either convince PNM and the Public Utility Commission to reconsider closing the plant, or to find another buyer to take over the plant. For the sake of the kids, the homeless, and the under served, let’s hope they do.      

George Sharpe is an Investment Manager with Merrion Oil & Gas in Farmington.