When the Navajo Transitional Energy Company acquired three Powder River Basin coal mines in October, industry analysts warned the purchase was a “risky bet” with lots of downside due to projected declines in the coal industry.
About six months later, the COVID-19 pandemic has only amplified those risks. Last month, NTEC laid off 130 workers, including 73 at the Spring Creek mine — a quarter of the workforce at Montana’s largest coal mine.
“The market has declined even more quickly than expected,” said Robert Godby, an economics professor at the University of Wyoming.
NTEC, which is owned by the Navajo Nation, became the third-largest coal company in the U.S. with the acquisition of Spring Creek and two mines in Wyoming from the bankrupt Cloud Peak Energy. But a complicated ownership structure that might allow NTEC to claim sovereign immunity and disregard environmental laws has created problems working with state governments.
NTEC did not respond to a Montana Free Press request for an interview for this story.
On NTEC’s first day of ownership, Spring Creek had to cease operations because of a permitting impasse. Since then, NTEC has been operating the mine under a temporary permit that was designed to last 75 days. Though the state and NTEC agreed on a limited waiver of sovereign immunity in March, the mines are still technically permitted to Cloud Peak, said Rebecca Harbage, public policy director at the Montana Department of Environmental Quality.
“[NTEC is] actively working to secure lease transfers with the state and [Bureau of Land Management] and need to transfer the bonds — these are prerequisites to the transfer of the operating permit,” Harbage said.
The Spring Creek bond, which is supposed to protect the state government from responsibility for clean-up costs, is still held by Cloud Peak, Harbage said. NTEC is supposed to find financial backing for a bond, but that may be difficult in the current environment, Godby said. The Navajo Nation has said it will not provide financial backing for the bond.
In March, DEQ approved a 72 million-ton expansion of Spring Creek that is likely to increase the operating life of the mine by four years, from 2027 to 2031. DEQ is currently in the process of updating the bond to accommodate the expansion, Harbage said.
Anne Hedges, deputy director of the Montana Environmental Information Center, said the state should have guaranteed that NTEC is able to bond the mine before approving a 977-acre expansion that will generate additional clean-up costs.
“If you don’t have a bond, how do you do that? I don’t know. It seems premature, to say the least,” Hedges said.
The state said it expects the expansion to raise tax royalties paid by NTEC over the operating life of the mine from $42 million to nearly $60 million. NTEC was already behind on tax payments to the federal government in January.
Montana has the nation’s largest recoverable coal reserves, but many of those reserves are likely to stay in the ground, as industry experts predict the market will face a “reckoning” because of the COVID-19 pandemic. Renewable energy production has outpaced coal production this year.
Before the pandemic, coal industry analysts were projecting a 17% decline in production of Powder River Basin coal in 2020. The first couple of months of 2020 tracked with those projections, but since then the pandemic has reduced energy demand and hundreds of workers have been laid off.
“The only way to say it is it’s been terrible,” Godby said. “It’s been about a mid-to-high 30s percent decline over last year. COVID has basically doubled the loss in coal that was happening prior to this.”
NTEC, however, has not experienced the losses that other companies have incurred. All three of NTEC’s mines produced more coal in the first quarter of 2020 than in the first quarter of 2019 — an increase accomplished by just three of 13 other Powder River Basin mines. The basin as a whole saw a double-digit decrease in overall production.
“The question is, how did they do that? At what cost?” Godby said. “It’s a zero-sum game right now. In fact, the pie is shrinking. In order to increase, you have to capture someone else’s business. What we can’t see is what prices they’re getting for the coal.”
NTEC was expected to export Spring Creek coal, but coal exports have all but dried up during the pandemic, Godby said.
Because NTEC is not publicly traded, its profitability is unknown, Godby said. But as coal markets continue to shrink, those that remain standing will be those that operate most efficiently, in part by minimizing labor costs. The mine’s expansion is also likely help NTEC operate more profitably, since it’s often cheaper to mine more accessible coal in a new section than to dig the last coal out of a heavily mined area.
“Clearly they’re making adjustments to run as clean as they can,” Godby said. “Not all the mines have done that.”