Headwaters sees hope in Congress for coal ash relief

Utah-based Headwaters Inc. (NYSE: HW) said April 26 that new U.S. Environmental Protection Agency air rules are forcing the shutdown of a number of coal-fired power plants, including plants that Headwaters relies on for a stream of coal combustion products (CCPs) that it recycles into the construction materials market.

The company’s Headwaters Resources unit is the largest domestic manager and marketer of CCPs, including fly ash, Headwaters noted in an April 26 first-quarter earnings statement. Utilization of these materials improves performance of concrete and concrete construction products while creating significant environmental benefits, the company added.

Another threat to coal ash recycling is a 2010 EPA proposal to classify ash as either regular waste or toxic waste, with that proposal not final yet. The toxic waste designation would likely knock this ash out of the recycling business.

Headwaters noted that legislation has passed the U.S. House and has been introduced in the Senate, S.B. 1751, that provides a “well-designed framework” to manage the disposal of coal combustion products. Supporters of S.B. 1751 are seeking additional Democratic support to move the bill in the Senate. On April 18, the House passed a short-term transportation bill creating an opportunity to hold a conference with the Senate on the Senate’s previously passed transportation bill. The House added its fly ash bill (H.R. 2273) to the short-term transportation bill, resulting in fly ash disposal legislation also moving to conference with the Senate.

Earthjustice and other environmental groups recently filed a federal court complaint against the EPA, seeking to force a deadline for the promulgation of a final regulation for the disposal of CCPs.

“We believe that stakeholders, except environmental activist groups, generally support a balanced, reasoned approach to fly ash disposal regulation,” said Headwaters. “To protect its interests against environmental activists, and to support the beneficial recycling of fly ash, Headwaters filed an action against the EPA designed to lead to rational disposal regulations. Finally, the EPA has not completed its risk evaluation of encapsulated beneficial use of fly ash. When the risk evaluation is completed, we believe that the EPA should confirm its long standing support of the environmental benefits associated with the use of fly ash as a substitute for Portland cement.”

The first calendar quarter of this year was the second fiscal quarter for Headwaters. Second fiscal quarter revenues in the heavy construction materials segment increased by 14% to $51.2m, compared to $45.1m for the second fiscal quarter of 2011. Headwaters experienced revenue growth in both CCP sales and in CCP services provided to utilities. The Western region continued to post positive year-over-year shipments and several new service sites operated during the quarter, contributing to overall growth. CCP service revenue represented 33% of total revenue for the second quarter, but is expected to be a lower percentage of the total segment revenue in the second half of the fiscal year as CCP sales expand during the construction season.

Low natural gas prices and the new EPA air regulations have combined to force the shutdown of several coal-fired power plants, negatively impacting the recycling of CCPs. “However, we have multiple sources of supply and a broad distribution system, which allows us to backfill CCPs in locations where power plants have closed, creating an opportunity for potential growth,” Headwaters noted.

In the discontinued coal cleaning segment for Headwaters, the company decreased its quarterly loss from $10.5m in the first fiscal quarter, to $2.3m in the second fiscal quarter largely through cost reduction efforts. “We continue to negotiate with a number of prospective purchasers for our facilities and expect to sell our coal cleaning business to one or more buyers before the end of fiscal 2012,” the company added. “It is currently anticipated that the gross cash proceeds from the sale of the coal cleaning assets will be in the range of $15 [million] to $25 million.”

The U.S. Mine Safety and Health Administration database lists 10 of these coal facilities under variations of the “Covol” company name used by Headwaters. There is one plant in Indiana, one in Utah, one in southern West Virginia (at the Pinnacle longwall mine of Cliffs Natural Resources), three in Kentucky and four in Alabama. MSHA shows five of the plants as either “temporarily idled” or “nonproducing,” with the other five considered active.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.