The coal mine saga that played  out in Delaware


Good afternoon,

Earlier this year tale of coal mines in Wyoming and Montana quietly played out 1,800  miles to the East in  Delaware.

Earlier, Navajo Transitional Energy received the go-ahead to acquire  Cloud Peak Energy at a  discount price  under an auction authorized by U.S. Bankruptcy Court in Wilmington.

The company was formed as a way to manage resources on the Navajo Nation, an area a dozen times larger than  Delaware that takes in portions of the Four Corners area of Arizona, New Mexico and Utah.

Prior to its trip to Wilmington Bankruptcy Court, Cloud Peak thought it hit the jackpot when international mining giant Rio Tinto decided nearly a decade ago to sell coal mines. At the time, it was believed that coal demand would remain stable or climb.

Cloud Peak became one of a number of companies, including the largest utility in Texas,  that made disastrous bets on coal, piled up debt and ended up in Delaware Bankruptcy Court.

Meanwhile,  natural gas supplies surged from wells in Pennsylvania, Texas and even New Mexico,  coal prices remained low. Meanwhile, demand took a hit as dozens of coal-fired power plants were shut down, due to age, stiffer emissions standards and cheap natural gas.

Navajo Transitional Energy owns one mine in New Mexico that supplies a nearby power plant. The New Mexico mine was acquired as part of an effort to save hundreds of jobs held by Navajo Nation members.

The half-century-old coal-fired generation plant has drawn its share of criticism since Arizona-based majority owner APS wants to put pollution-cutting scrubbers on the plant, with ratepayers likely to foot the bill.

Scrubbers are expensive.  NRG spent a reported $360 million on the remaining coal-fired unit at the Indian River Power Plant in Millsboro.  For a time, there was talk that a shutdown was possible, despite the massive investment.

If you double  NRG’s scrubber cost at Indian River, the number adds up to the total cost of the Wildcat Point natural gas power plant in neighboring Cecil County, MD.  Wildcat Point’s generation capacity is comparable to Indian River. Wildcat Point is affiliated with t electric cooperative network that includes  Greenwood-based Delaware Electric.

It is no surprise that critics suggest that it might be cheaper to let the New Mexico plant close at some point. Then again, hundreds of precious jobs in an area with one of the nation’s highest jobless rates would be lost.

Navajo Transitional remains upbeat about the prospects for its new low-cost mines, which still dig out a large chunk of the nation’s coal. The new owner will face environmental cleanup costs that come with running a strip mine but won’t struggle with the heavy debt load that sunk Cloud Peak.

It comes down to the question of how long king coal can hang on as the world looks for cleaner options as natural gas emerges as a bridge fossil fuel source.

Even the  Navajo Nation is hedging its bets. Work is underway on solar projects and the Tribal Council took a pass on buying  a nearby  coal-fired power  plant  that shut down last week.

It also rejected a request by Navajo Transitional Energy to back bonds related to the acquired coal mines, citing a lack of transparency in financial and operating issues associated with the mines.

Enjoy today’s sunny skies. The final newsletter of this workweek comes out tomorrow.

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