The Idaho Public Utilities Commission announced June 2 that it is approving an application by PacifiCorp d/b/a Rocky Mountain Power to set aside expenses related to the utility’s decision to close the Deer Creek longwall mine in Utah for possible later recovery from customers.
Deer Creek, located near Huntington, Utah, is operated by Energy West Mining, a wholly-owned subsidiary of PacifiCorp. The utility is seeking authority from the six states where it has customers to: incur costs for closing the mine; withdraw from a contract it has with the United Mine Workers of America Pension Trust, which will incur a withdrawal liability; sell the assets it has in the mine; and enter into agreements with Kentucky-based Bowie Resource Partners to provide replacement coal for the Huntington and Hunter plants in Utah, which have been taking coal from Deer Creek.
PacifiCorp is targeting closure of the Deer Creek mine for 2015, pending regulatory approval. The U.S. Mine Safety and Health Administration database classifies the mine as “nonproducing,” with no production in the first quarter of this year, and 2.1 million tons of output in all of 2014, with 499,755 tons of that production in the fourth quarter of 2014, its last quarter of operation. Despite the lack of production in the first quarter of this year, MSHA data shows the mine with 126 underground workers during the first quarter, 28 surface workers (basically coal handling operations once the coal is outside of the mine) and two office workers. It takes some time and a fair amount of manpower to shut a mine.
Bowie trucks in coal to the Huntington plant from its mines in Utah’s Carbon and Sevier counties. Earlier this decade, Bowie bought the Skyline, SUFCO and Dugout Canyon deep mines in Utah from Arch Coal (NYSE: ACI), in the process becoming a major coal supplier to PacifiCorp. The new contract proposed by PacifiCorp with Bowie extends for 15 years and provides a reliable coal supply (at 2.8 million tons per year) with steady prices.
The commission said the proposed mine sale sale is in the public interest because it mitigates the company’s potential exposure to increasing pension and medical obligations to the mine’s 182 employees and that the resulting cost for supplying electric service will be less going forward than it would have been without the transaction.
However, the commission denied the company’s request to recover carrying charges before the next rate case. The commission also did not approve the company earning a return on expenses related to the mine’s closure. Instead, the commission agreed to grant the company an accounting order that will allow it to defer costs related to the transaction for review by the commission after the company files its next rate case. A return on deferral during recovery may also be argued in the next rate case.
The PacifiCorp Idaho Industrial Customers group and Monsanto opposed the application, stating it is too early to determine actual costs related to the closure until after a rate case is filed.
The mine, purchased in 1977, had at one point produced an average 3.5 million tons of coal annually. The mine has been the primary source of coal for the Huntington Power Plant in east-central Utah, which annually consumes about 2.9 million tons. It has also supplied some coal to the Hunter Power Plant.
Rocky Mountain Power said Energy West’s health care costs and contributions to the pension trust were sharply increasing. Under the most recent labor settlement, Energy West was responsible for almost 100% of the health care costs, with employees paying a minimal co-payment and no premium cost-sharing. The deficit between the market value of the pension trust’s assets and the present value of the vested benefits is about $5.5 billion.
In addition to labor issues, the mine is producing lower quality coal as it ages, which, in turn, reduces the volume of coal produced. As Energy West sought to develop additional areas of the mine’s reserves, it discovered significant volumes of high-ash, high-sulfur coal, meaning much of it had to be transferred to a preparation plant nearby to be blended with lower-ash coals to meet coal quality specifications. More coal is available on the market, making it less advantageous to own coal mining assets, Rocky Mountain argued.
U.S. Energy Information Administration data shows that the primary coal suppliers to Huntington, a 909-MW plant, in 2014 were PacifiCorp’s own Deer Creek mine, with most of the shipments, and also Bowie’s SUFCO mine.