San Juan Mine faces multiple challenges in the years to come
FARMINGTON — Since 1973, the San Juan Mine has reliably delivered coal to the San Juan Generating Station, allowing customers throughout New Mexico to receive electricity.
The future of that mine is now in question due to variety of factors ranging from a company bankruptcy to the proposed shut down of the mine’s sole customer — the San Juan Generating Station.
Westmoreland Coal bought the San Juan Mine for $127 million in 2016 from BHP Billiton. On Oct. 9, the company filed for Chapter 11 bankruptcy. This comes only months after the company secured a refinancing agreement that allowed it to pay off the $50.6 million it owed for purchasing the San Juan Mine.
Westmoreland saw nearly $51.8 million less revenue from U.S. coal sales during the first half of 2018 than it did during the first half of 2017, according to financial statements available on its website.
There is still a lot of uncertainty regarding how the bankruptcy will impact the San Juan Mine, which employs 360 people.
Westmoreland states that it does not anticipate layoffs or closures in the near future, however the San Juan Mine is on the list of properties that could be sold during the restructuring process.
State Rep. Sharon Clahchischilliage, R-Kirtland, said what happens with the mine could impact the San Juan Generating Station.
“Without coal, the plants are going to have to close earlier,” said
Local legislators like Clahchischilliage have been working to get a transition plan in place for the closure of the generating station. She said if the mine closes it will eliminate all chance for a transition plan.
The bankruptcy is not the only challenge the mine faces.
The Office of Surface Mining Reclamation and Enforcement is completing an Environmental Impact Statement process to determine if the mine can continue its underground operations, known as the deep lease extension mining plan modification. The mine initially received approval in 2008, but that approval was challenged in court by advocacy group WildEarth Guardians.
The draft environmental impact statement was finished this year and presented to the public during the summer.
If the deep lease extension is not granted, the San Juan Mine will have to cease operations in August 2019.
A decision is expected by August of next year. The proposed action in the draft Environmental Impact Statement would allow the San Juan Mine to produce coal through 2033, which would allow Westmoreland to find another customer for the mine if the generating station closes.
According to a draft Environmental Impact Statement for the San Juan Mine, the San Juan Generating Station has enough coal stockpiled to operate through 2020 if the mine closes.
“If there’s no coal, then there’s no plant...if there’s no plant, then there’s no workers. If there’s no workers, then it impacts the family,” Clahchischilliage said.
She said if the miners and the generating station’s employees lose their jobs, then they may have to leave San Juan County to find work and could potentially leave their families in search of employment.
Westmoreland is the fourth major coal company to file for bankruptcy in the past three years
Westmoreland is the sixth-largest coal-mining company in North America. It operates 19 coal mines in six states as well as Canada. While it is the oldest independent coal company in the United States, it is far from being the first to file for bankruptcy protection. Three other large coal companies have filed for bankruptcy in the past three years.
In April 2016, the largest U.S. coal company Peabody Energy filed for bankruptcy protection when a decline in coal prices left it unable to pay its $10.1 billion debt. After restructuring, the company emerged from bankruptcy in April 2017. The company emerged from bankruptcy with significantly less debt.
Arch Coal also filed for bankruptcy protection in 2016. It moved through bankruptcy quickly and emerged later that same year.
Alpha Natural Resources, another large coal company, filed for bankruptcy protection in 2015. It exited bankruptcy in 2016.
Westmoreland plans to move through bankruptcy quickly and emerge in 2019.
Westmoreland employs a total of 2,971 people and has 68 existing coal sales contracts, according to court documents.
In the 12 months leading up to Aug. 31, 2018, the company netted $850 million of revenue, court documents state. The documents state Westmoreland also has $1.1 billion of debt.
San Juan Generating Station’s two-unit closure has led to decreased demand for San Juan Mine’s coal
The San Juan Mine is a relatively recent acquisition for the Colorado-based company. It purchased the mine in 2016. The mine is one of several mines it owns that follows the mine mouth model — meaning the coal produced is directly delivered to a customer. The sole customer of the San Juan Mine is the San Juan Generating Station, operated by Public Service Company of New Mexico.
The contract with San Juan Generating Station ensures that the mine will have a customer through 2022. While tying the mine to the power plant ensured a customer for the coal, it also means the profitability of the mine is tied to the operations at the generating station.
This power plant is scheduled to close in 2022 and has already shuttered two of the four units. Shuttering two of the units as well as a temporary closure of another unit due to a collapse earlier this year caused a 60 percent decline in the amount of coal the San Juan Mine sold during the first half of 2018 compared to the first half of 2017, according to financial statements.
The mine’s tie to the San Juan Generating Station also creates an uncertain future for its operations. In 2017, the San Juan Generating Station shuttered two units, cutting in half the demand for coal.
Prior to the shutdown of two units at the generating station, the San Juan Mine was producing 6 million tons of coal annually.
On March 17, a failure at a coal silo at San Juan Generating Station led to coal falling from the silo. The resulting coal dust combusted and caused an explosion, which damaged San Juan Generating Station Unit 1. Unit 1 was taken off line until July 5, 2018.
Insurance covered the majority of the $23.5 million cost of repairs to the San Juan Generating Station. There is a $2 million deductible. PNM will pay $1 million of that deductible and Tucson Electric Power is responsible for the other $1 million. The two utilities jointly own Unit 1.
Both PNM and Tucson Electric Power plan on closing the generating station in 2022.
If the San Juan Generating Station does close in 2022, the owner of the San Juan Mine will have to find another customer to take the coal.
Westmoreland customers nationwide are canceling contracts, reducing demand
Westmoreland’s financial statements say demand for coal is facing downward trends. In addition to a decrease in demand, political pressures and the price of competing products such as natural gas has made the price of coal volatile, according to the financial statements.
In 2016, Westmoreland sold 54.7 million tons of coal in the U.S. and Canada. That number dropped to 49.7 million tons the next year, a 9 percent reduction, according to financial statements.
Westmoreland has seen several of its coal customers cancel contracts or choose not to renew them in the recent years.
Among these customers was Limestone Electric Generating Station, which canceled its contract with Westmoreland about two years ago in favor of cleaner Powder River Basin coal. This led to the Jewett Mine in Texas closing in 2016, resulting in 250 people losing their jobs.
Another one of Westmoreland’s customers, the Colstrip Power Plant, has until 2022 to shut down two of its units, which will reduce the demand for coal from the Rosebud Mine in Montana.
More recently, a customer in Ohio notified Westmoreland in June that it will not renew the coal supply contract for Conesville Power Plant Units 5 and 6 after the current contract expires at the end of the year.
Westmoreland’s financial statements state that the company is looking to secure new contracts to replace the ones that have been lost, but the company cannot guarantee those efforts will be successful.
The San Juan Mine will be forced to find new customers or shut down in 2022 unless local leaders can convince someone to buy the San Juan Generating Station or Public Service Company of New Mexico chooses to keep the power plant open past the proposed 2022 date. PNM’s coal supply agreement with Westmoreland expires June 30, 2022, which is the basis for the proposed 2022 closure.
Mariel Nanasi, the executive director of environmental advocacy group New Energy Economy, said she does not think recent environmental activism has led to the current decline in the coal industry.
"The issue is can coal compete in the market and it can't," Nanasi said.
Electricity produced through burning coal has been on the decline
Since 2007, the number of states receiving most of their electricity from coal has dropped from 28 to 18, according to the U.S. Energy Information Administration.
Five of those states have switched from coal to natural gas, according to the EIA. The other five now receive the majority of their power from nuclear generation.
About 30 percent of electricity generated nationwide comes from coal, according to the EIA.
While coal has been on the decline, natural gas has increased in usage. In 2007, less than a dozen states received the majority of their electricity from natural gas. This has since increased to 16 states in 2017.
This is both good news for the San Juan Basin, which boasts one of the largest natural gas reserves in the country, and bad news as coal has traditionally balanced the boom and bust cycles of other fossil fuels in the basin.
In 2008, more than one billion tons of coal was used to produce electricity, according to the EIA. Last year, less than 663.5 million tons of coal were used in electrical generation.
The EIA’s annual energy outlook, release in February, stated that coal will continue to decline even without the Clean Power Plan, which President Donald Trump has repealed. The outlook further stated that even without the low natural gas prices coal will continue to decline.
Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at email@example.com.