UB Insider #17 – How the Coal Industry is Fueling Economic Diversity
About this episode:
Utah has a long, proud history with the coal industry, but the market is changing—which can spell bad news when nearly three-quarters of the economy in some areas depend on the industry. In this episode of UB Insider we talked to Carbon County Commissioner Jae Potter about what his county is doing to diversify its economy and how the decision of the Oakland City Council to ban coal in its massive new port terminal will impact the industry here. Find us also on iTunes and Stitcher.
Lisa Christensen: Hello and welcome to UB Insider. I’m Lisa Christensen, online editor at Utah Business magazine. The Utah coal industry is big business, bringing in more than $600 million in sales and royalty revenue every year. We produce roughly 17 million tons of coal annually. One of the highest producing counties for coal in the state is Carbon County. And here to talk with us about the industry is Carbon County Commissioner, Jae Potter, who also sits on the state community impact board.
Jae Potter: It’s good to be with you.
Lisa Christensen: Thanks for coming in.
Jae Potter: Thank you.
Lisa Christensen: Tell me a little bit about what the industry is like in Carbon County and how that compares to other regions in the state.
Jae Potter: In comparison to other regions in the state, we’ve been a mining community for over 100 years, all the way from the very beginning of the state of Utah to the current time. We are going through some real changes and there’s no secret about that. I would guess that probably 70%-80% of our local economy is based on mining and power generation. And so when you start talking about what does a reduction in that mean? It’s very, very difficult in a small community.
My county has about 18,000 people in it, and so we’re very reliant upon those industrial type jobs to provide a good living wage and have benefitted families for years and years. The condition of the market is not good. Just this last week we received notice that one of the American Energy mines is going to close down, the one at C Canyon, along with the Rhino mine laying off part of their force. And so, that’s probably another 200 jobs that’s compounded by the closure of Deer Creek last year and the Carbon Power Plant. So when you take 1,000 jobs out of a very small community in a rural county, you definitely feel the pain. Not only from those families that are deeply affected by it, but from a county government, a city government basis it just really hurts.
Lisa Christensen: So 70% is a huge portion of the economy. What are you doing to try to diversify the economy in light of the changes you guys are going through?
Jae Potter: I think over time there has always been a lot of talk about what is diversity? Especially in our county. We continue to work with EDC Utah, the Governor’s Office of Economic Development. We are very active as far as our local economic development director. She plays an important role in looking for companies that are looking to relocate. We have a very skilled workforce coming from the mines and the power plants. We’re fortunate that we have USU Eastern there, so we have a good college, university system. So there’s all those things available, but it’s really hard to, what would you say, recruit people into rural Utah when you consider that, I believe it was 90% of our population live on the Wasatch Front. There’s a lot of reasons they do that, but I think most of the time we just have to be in a position that a company is looking and that we are actively seeking.
I think that manufacturing fits very easily into what our economy is. We work very closely with the Uinta Basin, Uinta and Duchesne counties as far as their needs for transportation. We have the rail lines that come through the county, so we are very well set to be a transportation hub too. And that can be anywhere from warehousing and trucking to things that would use the rail. We’re working with Duchesne County right now on the possibility of a pipeline between the two counties that would get the waxy crew to the rail heads. So we’re very active in looking for what that is, but in the meantime we have to do all we can to preserve that economy that has been our lifeblood for longer than my life.
Lisa Christensen: And not helping anything is what’s been happening in Oakland. In 2013 the Oakland City Council approved the Oakland Bulk and Oversized Terminal project which was intended to allow the shipment of a lot of coal through Oakland. So you guys, Carbon County, along with Emery, Sevier and San Pete counties got involved with the project in the form of pledging $53 million to help build the project. Which would come from a loan from the state, correct?
Jae Potter: It’s a loan to the counties, not a loan to a private developer or the port operator. It’s kind of interesting how that came about because we had our coal companies, and again, looking for development opportunities we happened to be in the right place at the right time. We were looking at the export capacity perhaps through Mexico and other international places, and this opportunity was brought to us. And so we had gone down the road as a community impact board of putting aside monies that were for large, infrastructure type projects. And I guess I should maybe clarify, backing up just a bit on the money side of this. Because these revenues that the community impact board uses are a mineral revenue from the extraction industries.
If you look at what the CIB has done since its inception, they take the new monies that have come in, monies that are returned through loans and interest and recycle those through rural Utah. There’s been over a billion dollars worth of infrastructure and community centers and pools and you name it built through the state of Utah that would not have happened without the extractive industries. So these dollars are not property tax, they’re not sales tax, they’re extraction mineral dollars that come with that. And so as the CIB, we had started setting aside some of these large monies to do that.
When this project came along, because it was fully developed, I shouldn’t say fully developed, but fully permitted and had been being worked on for over 10 years with over $500 million of money already put into the development of the old Army base there at Oakland. We saw that as an opportunity. And because we were first to say yes, we’re interested, then for that $53 million we are in that process of saying, what would that buy for us? And it would buy us throughput for Utah commodities, coal being one of those, up to about 50% of the port capacity. And it’s a 9-10 million metric ton port. So it meant that Utah would have the rights to at least half of that throughput. And in return, not only would we have the throughput, but we would also have a return on our investment.
Remember, the counties are the ones that are applying for the money. So we would be responsible not only for payback but also for the opportunity to receive profitability off of a port like that. So that means dollars that can come right into our general funds. In my opinion it’s a way of mitigating the effects of the downturn in the coal market for a very long period of time. Not only in job security for a time while we diversify and perhaps go through that change, but also revenue that comes in that helps us make that transition too as a county governance.
Lisa Christensen: Right. And the Legislature was involved with the decision for those monies. That $53 million proposition went before the Legislature and was passed this last session.
Jae Potter: It was kind of the second part of that story. And that is that as we took the mineral monies that were Federal mineral monies, there are certain restrictions and strings that are attached as all Federal monies are. We had looked for an opinion from the HE’s office and so many times they don’t give an opinion where there was none. Our private counsel who was helping with the county said you shouldn’t have any issues there. But it was brought up that perhaps that could be a stumbling block, especially with the environmental community. Was it a proper use? So the counsel we were given was, if it was such a good idea or such a good, perhaps investment if you want to call it that, that we should take it to the Legislature. And that’s exactly what we did.
So senate bill 246 did nothing more than take our mineral monies, the new dollars coming in, and gave them to the Department of Transportation because they can always use Federal monies. And those monies are to be used in rural counties on rural roads which is a legitimate use for community impact dollars. In turn, we then received dollars back in what the state set up as the throughput infrastructure fund. So it’s totally different than the CIB monies because now it’s gone from Federal to state and state back. But the community impact board was tasked also now as being the administrator of that fund. So they are state dollars, but it was again, dollar for dollar exchange and it’s not that general taxation that everybody wants to talk about, that it’s a waste of my tax dollars. It was never public tax dollars to begin with other than it was mineral monies.
Lisa Christensen: But there has been a stumbling block in the whole plan in the form of the Oakland City Council vote a couple of weeks ago when they met. They voted to ban coal and petroleum tar from being shipped through the city. They cited some environmental and safety concerns. And there’s another side in Oakland that is arguing against the ruling citing jobs that could be created by allowing those things to come through the port. So there’s a lot of turmoil going on in Oakland about it, but it also reaches here too.
Jae Potter: Right, and we knew that when we had received the legislation that was passed and that the monies were going to be available, we could go forward and work towards putting together and structuring a deal, we really knew that that was going to take nine months to a year to negotiate throughput capacity, contracts that would be involved. I mean, there would be multiple layers of things that have to happen before we could be involved in the project.
One of those is an estimate of another $200 million in private funds which wouldn’t be collected by the counties, but would be coming from, you know, other outside investors. So the question is often asked, why did the counties or the state need to be involved at all if the public or private industry would take care of it? The only reason is that it preserves us that throughput capacity for the state of Utah. And it also gives us that opportunity to say yes, we could put coal into the international market.
But the issues with Oakland, because it raises that question, the Oakland Council voted against the handling and storage of coal and petroleum within their city boundaries. They can’t really do anything about the public transportation issues there, or the surface transportation. Coal is already a regulated commodity by the EPA. And the initial rulings that were sent to the board, or their county, was that, you know, as long as it’s abided by those rules there are no health issues or other issues. And so then this report was generated for their last hearing that they acted upon. Which if you really took time to read that 200 page report you would see that there are some real gaping holes. It’s not independent. It’s past, the same hyperbole we’ve heard before and seen. All the way down to that coal causes asthma and we would contribute to the air pollution and all those things that are there. But the reality of it is, where that port is located, it has always been a bulk terminal. And also, as a train comes into that area it is reaching the end of its journey. For a locomotive from stop to start, for a locomotive to reach 30 miles per hour it takes about 25 minutes. So you can imagine how slow a train of any kind is going as it enters into that last mile. There’s basically under a mile that actually goes through Oakland. So a train is crawling around…
I often ask the question, if it’s such a health issue, why don’t you come to Carbon County. Let us show you how coal is mined, how it’s stored and how it’s transported because we transport coal every day through downtown Price, Wellington, Helper. It probably goes through Salt Lake on its various journeys and see that the claims of how much tonnage of dust and coal comes out of a coal car is just absolutely ludicrous. Where they came up with the numbers, I have no idea. So they voted to do that, and now what is the position that Utah has? Well we’ve always said this had to be a fully vetted project. It had to be no hurdles, no restrictions. So really it’s now up to the developer and the port operator to work those difficulties out with Oakland. I would imagine that it will involve litigation because I don’t believe that legally they can do what they’ve done. But in the meantime we will continue to produce coal, to produce power. We’ll continue to look for export capacity and we’ll continue to work on our deal that could be put together in regards to the Oakland Bulk Terminal.
Lisa Christensen: You guys haven’t applied for the $53 million yet because you have to apply for that as a loan from the state. So if you haven’t applied for that, do you happen to know how long that money would be available?
Jae Potter: The way the bill was set up, is there was not a deadline put into it. I’ve been asked that question, well what does the timeline look like? Because it will take… This is such an intense, complicated transaction. We really will be nine months to a year before anything will really, totally come together. And so there isn’t an expiration date on the money. That throughput capacity, that throughput fund was set up for ports, rail, transmission, and there was one other item I believe in there. So those monies could be used in other ways, but specifically, in this term, it was set up to go down the road of the port.
So in answer to that question about the application, the original application with the CIB and their large infrastructure fund will be withdrawn probably within the next 30 days. So those monies that were set aside, that $53 that was already there in the bank is still already there in the bank and will start to be returned as the normal funding cycle for the CIB. So nobody is being penalized there. And then the four counties will either organize into a new sub-agency, sub of the state of Utah or we may go through an organization like the six county coalition, infrastructure coalition and we’ll make another formal application for those monies that was set up in that new throughput fund.
So, you know, in the next probably two to three months, all those things will happen. And things will continue to roll forward. I think it’s important to remember what the intent is in the monies being set aside. We’ll work through that. We’ll have to answer a lot of questions. I, for one, because I’m from a producing county, the reason I have a seat on the community impact board is that Carbon County is the second largest producer of mineral monies in the state. And so I value those. I mean, I see it in my own community every day, where those monies are spent. And through the state of Utah. Even in non-producing areas that are rural that are heavily impacted by all kinds of social issues. I, for one, am not wiling to spend dollar one until it’s a done deal. And until there are some assurances and guarantees in place.
Lisa Christensen: Sounds like there are a lot of moving parts involved and you guys are just going to have to watch and see how it goes.
Jae Potter: That’s very, very true. There are so many parts on it that on a daily basis there is activity that we have to monitor and so forth. Like I said, we do not have a contract. We are just in that verbal stage and now we’ve got to wait and see what really happens with the Oakland stuff. There’s nothing that I can definitely put out there that says, this is where we are. This is where we will be in a week from now. And so we just continue to communicate and look for those opportunities that are coming because of that. But as far as anything permanent, no, I don’t.
Lisa Christensen: I guess it’s just something that you have to watch and see.
Jae Potter: That is very true. And we have just exceptional people in the mining industry. Because I’m most familiar with coal, we have great partners there. And every time a mine is forced to close down because of market conditions, I think raises those red flags that says, well, is it viable? But in the case of the Oakland port with it being a 66 year lease, you talk about diversification and buying time, that was most appealing that our mines could have that opportunity.
What really happens is that in 2027, is when the contract for the IPP Power Plant in Delta basically ends with the state of California. Back in the early 80’s, California came to the state of Utah and the legislature and convinced them to put that plant in, to allow it to be built in Utah, to burn our coal in Utah and all of the other associated issues that go with it. And they would take the power. And really what they’re doing is walking away from that social contract. So if we don’t do something, they are a big coal user along with our power plants in the local area. But they’ve walked away from that social contract and if we don’t do something, what does that do? It devastates rural communities and so anyways…
I really believe that clean coal technology has come a long ways. We are some of the cleanest generating power down in Emery County, far beyond even what the current standard is, and yet we still have those Federal regulations that are imposed and what does that do to jobs? Does a company step up and make those changes? Or does it go away? That leads to all kinds of discussions of where does baseline power come from? If we had the same subsidies that renewables have, how much of a difference would that have made?
I had a solar company come into my office pitching maybe to do a solar farm. They had some construction jobs associated, but when they were done it was four jobs to keep the weeds down and clean the panels. But what they were asking for was to be competitive with our power was they would take the 30% Federal tax credit, and then they were telling us that if we were to do this, we would have to give them a 70% abatement on their property tax. And I did the math there, and I was like, that’s like 100% financing for nothing. And what does that do for the rest of us?
I am not renewable energy opposed? I am only opposed when it’s not on a fair playing ground. And when the information sometimes that is put out there is not factual. Which is the case back to the Oakland situation. If the truth was really there, there wouldn’t be an issue. This is a company that would transport the coal in covered cars. It would be unloaded in a covered facility. Transported or stored in a covered facility and loaded in that same way. And they say, well that’s dangerous. That’s hazardous. There’s combustion. Well the Midwest uses coal domed terminals all the time to feed their power plants. Covered cars are used for coal and other commodities throughout the United States.
So those are kind of the gaping holes that I see in that issue there. That it can be handled in a very safe, economical and viable way. It would be a world-class facility. It would bring I don’t know how many thousands of jobs to an area that really needs that work. But I can’t tell California what to do. In some ways they are really putting their backs up against the wall in my opinion.
Lisa Christensen: Well they do need to have a second vote for that first vote to become finalized.
Jae Potter: So you never know.
Lisa Christensen: You never know.
Jae Potter: You just really never know with these things.
Lisa Christensen: Well thank you so much for talking to us about this issue. It sounds like you’ve got a lot of irons in the fire and good luck with those.
Jae Potter: Thank you very much. I appreciate the opportunity to explain and to talk about it and give some firsthand knowledge of what is really there. So thank you very much.
Lisa Christensen: You’re very welcome. Absolutely. We’ll keep an eye on this as well. Thanks also to Pat Parkinson for production help. Keep updated about what’s going on in Utah’s business community by following us on Facebook, Instagram or Twitter or by subscribing to our daily newsletter through our website, UtahBusiness.com. Thanks for listening.