A sketchy deal that would have led to construction of a new seaside terminal in Oakland, California, to export coal from Utah—the focus of great political fanfare in both states just a year ago—looks like it’s now dead for good.
Public opposition to the project, and exposure of political machinations that didn’t pass the smell test, were key to halting the development. But the real moral of the story is this: Even when politicians bend over backwards in support of economically unviable projects at public expense, such projects remain unviable anyway.
The California proposal, promoted by the well-connected developer Phil Tagami to expand the Army Base Terminal in Oakland, would have relied on coal for 49 percent of its export commodity mix. The idea surfaced last summer, and an Oakland City Council hearing in September 2015 drew hundreds of local opponents. IEEFA’s director of finance, Tom Sanzillo, submitted testimony showing that counting on coal as much as the proposal did posed significant financial risks (especially to taxpayers) due to the distressed state of the global export coal markets and the weak financial performance of Bowie Resource Partners, the Kentucky-based company that owns the Utah mines that would have shipped the coal to Oakland.
Opposition to the project continued to mount in California, as environmental organizations, including the Sierra Club and Earthjustice, filed lawsuits, state Senator Loni Hancock took a prominent and influential role in questioning the project, and residents of Oakland objected to public health hazards associated with local coal transport and shipment.
Market forces—and the weak financial fundamentals of the project—drove skepticism too.
But even as the proposal seemed to be losing momentum in Oakland, Utah coal industry proponents were pushing for a plan to provide the Oakland port with $53 million in public funds—ostensibly as a loan, but with the option of converting it to a grant.
An IEEFA March 9 memo to the Utah State Legislature highlighted the flaws in the legislation:
“The bill offers no guidance as to how state and local officials are to protect Utah taxpayers in port negotiations. Key here is whether the state’s $53 million is subordinated to the $200 million that the private sector is supposed to invest alongside this public money. The original state application by the Utah counties involved states that a $200 million companion investment from a private institutional investor would be available by June 2015. This benchmark has been missed. That means the only player in this transaction with an open checkbook and a deep pocket is the state of Utah.”
Both of Utah’s major newspapers, the Salt Lake Tribune and the Deseret News, editorialized against the bill, citing the weak state of the global coal markets as one of the reasons the project would likely fail. Darwin BondGraham, a reporter at the East End Express in Oakland, published details on campaign contributions from Bowie to Utah legislators and to Utah Gov. Gary Herbert. The legislature, under pressure from the coal industry, passed the bill nonetheless and Herbert signed it into law.
In the meantime, coal export markets continued to shrink. On the same day the Utah Legislature approved its $53 million folly, Arch Coal announced it was canceling its longstanding plan for the Otter Creek mine project in Montana. That mine was supposed to have supplied coal for both export from the West Coast and for domestic use, but it had become clear that neither market had any need for what would have come out of Otter Creek. Nor was there any need for more Utah coal.
More questions surfaced about the future of Utah coal and the financial wherewithal of Bowie. In April, Bowie failed to come up with the money to purchase three mines in New Mexico and Colorado from Peabody Energy; Peabody, on April 13, filed for bankruptcy.
IEEFA joined with eight other organizations in June to urge federal officials to investigate the Utah deal, and the Oakland City Council voted unanimously on June 22 to block the scheme.
The four Utah counties involved in the $53 million deal withdrew their loan application on August 18. Bowie’s financial position appeared to grow increasingly feeble as it announced the next day that it had withdrawn its proposed IPO. And last week—on Aug. 26—California’s governor, Jerry Brown, signed a bill effectively banning additional coal export terminals in California by prohibiting public funds from being spent on them.
“Action on multiple fronts will be needed to transition away from coal,” Brown said in a statement. “In California, we’re divesting from thermal coal in our state pensions, shifting to renewable energy, and last year, coal exports from California ports declined by more than one-third, from 4.65 million [tons] to 2.96 million tons. That’s a positive trend we need to build on.”
It’s still technically possible for the export-terminal proponents to challenge the city’s ordinance, but they would no doubt be up against a formidable legal defense. As Earthjustice’s Irene Gutierrez told SNL Energy, “If I were a developer and reading the tea leaves, I would be exploring other commodities at the moment.“
So in the end, taxpayers will be protected from a deal that ultimately would have served no purpose other than to enrich private-sector interests in pursuit of a project that was doomed to fail.
Sandy Buchanan is executive director at IEEFA.
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