A bill being seriously considered by the Utah State Legislature this week seeks in essence to finance a backdoor subsidy for a coal export terminal in California whose construction could well leave Utah taxpayers on the hook for a highly questionable and highly speculative $53 million out-of-state subsidy.
The proposed law, which exists now as SB0246, is being offered as a narrow, technical transfer of state funds that would let a number Utah counties participate in a transaction that goes unnamed in the legislation.
However, the actual project for which the legislation is intended—that coal-export terminal in California—is a highly risky undertaking that is likely to end in losses for Utah. The state stands to lose not only the $53 million that proponents want earmarked for port project (which is in Oakland), it would be buying into deeper potential liabilities.
The biggest fiscal and implementation risks in this legislation include:
It’s hard to imagine a worse time to get talked into a giving the coal industry a $53 million subsidy. Coal companies across the U.S. have either declared insolvency or are teetering on the brink of bankruptcy. Cloud Peak Energy, a leading Western U.S. coal producer and exporter, says it sees no export market for the foreseeable future. Signal Peak Energy in Montana, another West Coast coal exporter, has taken recent write-downs tied to the weak state of the U.S. coal export market. Arch Coal, whose business model is based largely on West Coast exports, is in bankruptcy. Utah-based Bowie Resources, a major beneficiary of the proposed transaction outlined SB0246, is in financial distress, having failed to close plans to buy out private equity investors and have failed recently to secure backing for its proposed purchase of three mines, in Colorado and New Mexico, from Peabody Energy. Bowie has also failed recently to meet its latest targets for coal shipping through the Port of Stockton.
Coal-export facilities are “risky long-term bets” to borrow a recent phrase from Wood Mackenzie, the global consulting firm that recently reserved course on its long-bullish view of the U.S. coal industry.
If Utah were to take part in the Oakland port scheme it would be buying a pig in a poke.
Tom Sanzillo is IEEFA’s director of finance.