Coal industry sheds jobs, leaving Eastern Kentucky economy in tatters

Lexington Herald-LeaderJuly 29, 2012 

The impact of an estimated 2,000 mining layoffs this year is hitting home across the mountainous coal counties of Eastern Kentucky.

Gary Hall of Pike County, whose job at a coal-washing plant is scheduled to last a few more weeks, might have to tap his retirement nest egg if he doesn't find mining work.

Kyle Thacker, laid off from his job as a utility worker at an underground mine, has thought about going back to school to become a welder, but said he might have to move from Knott County for work.

Jeremy Slone moved to Lexington with his wife, Marcie, and their 2-year-old son Braxton after he lost his job driving a giant dump truck at a Perry County surface mine in April. He's trying to get on at Toyota in Georgetown.

Other laid-off miners don't know what they will do.

The cutbacks will ricochet through the economy in an area where good-paying jobs, especially for people without college degrees, were in short supply even before hundreds evaporated.

"It's going to start hurting Wal-Mart, Lowe's, all these stores," said Hall, 51. "I don't know what all these coal miners are going to do. Some are going to lose their homes."

The century-old coal industry in Eastern Kentucky has always been cyclical, spiking in the 1970s and then dwindling over two decades before swinging back up for a time.

That traditionally has raised hopes for another comeback, but there are concerns employment won't ever return to the levels of just a few years ago.

Federal analysts project Central Appalachia is at the front end of a steep, long-lasting drop in coal production.

"Some of these mines are not going to come back," said Michael Dudas, a managing director at investment firm Sterne, Agee & Leach, Inc. who follows the coal industry.

IS 'WAR ON COAL' TO BLAME?

The belief in Eastern Kentucky is that federal environmental rules are to blame for the loss of coal jobs — the "war on coal" that officials in the region decry — but several analysts said other factors led to the layoffs this year.

Most notably, they pointed to historically low prices for natural gas and the unseasonably warm winter of 2011-12, which left power plants with stockpiles of coal.

Other factors, such as the slow recovery in manufacturing and the broader economy, also have played parts in the drop in demand for coal.

"Current market forces were the prime driver" in the layoffs, said Michael Tian, an analyst with Morningstar.

Changes in drilling technology have allowed companies to unlock vast new sources of natural gas in recent years, sending supplies up and prices sharply down.

The May price for gas was 43 percent lower than just a year earlier, said Manoj Shanker, a state Education and Workforce Development Cabinet economist.

Many U.S. utilities have switched from coal to natural gas for electricity generation as a result, Shanker said.

In April, the national share of electricity generated using natural gas matched coal's share, at 32 percent, for the first time since the U.S. Energy Information Agency began keeping such records in 1973.

The Central Appalachian coalfield, made up primarily of Eastern Kentucky and West Virginia, faces other challenges as well, including competition from cheaper Wyoming coal and relatively high production costs.

Shanker provided figures showing that in early July, the average spot-market price for coal from the Wyoming Powder River Basin was $8.50 a ton, compared to $56.10 a ton for Central Appalachian coal.

Coal from Eastern Kentucky burns hotter, but the price difference makes it hard for Kentucky to compete with Western coal, Shanker said.

And it costs more to produce coal in Eastern Kentucky, in part because the area has been mined for a century. Companies naturally went after the best seams first; those that are left are harder to get at, meaning higher mining costs and lower productivity.

In a report released in June, the U.S. Energy Information Administration projected that annual coal production in Central Appalachia will drop sharply, from the 2010 level of 186 million short tons to 132 tons in 2015, and to 92 million tons in 2018 — a decline of more than half in the current decade.

After a further drop to 72 million tons in 2024, the agency projected a modest recovery to 88 million tons in 2035, still far below levels seen in recent years.

Rising production costs and lessening productivity were key in the projected decline, said Michael Mellish, a coal analyst with the agency.

The retirement of many coal-fired power plants, prompted in part by tougher federal emissions standards, also played a role in the projected decline.

The U.S. Environmental Protection Agency has implemented or proposed tougher regulations on mining and burning coal, including limits on emissions of mercury and other toxic substances.

The agency has held up dozens of proposed surface-mine permits in Eastern Kentucky over concerns that they would not protect water quality adequately.

Environmentalists have applauded the moves to protect air and water quality, but the rules have made the EPA unpopular among many whose livelihood depends on coal. They think the rules are overly burdensome and don't acknowledge the importance of coal to the economy.

"They're killing us," said Thacker, 24, who was laid off from an Arch Coal mine in Knott County.

Some analysts said that while other factors have played a far greater role in this year's layoffs, current and pending federal regulations can't be dismissed.

"When a company makes a decision to close a mine, they're not just looking today, they're looking long-term," said J. Christopher Haberlin, a vice president with investment firm Davenport & Co. in Richmond, Va., who monitors the coal industry.

Some of the regulations have not been finalized.

Luke Popovich, a spokesman for the National Mining Association, said whether the rules are in place or coming, "the uncertainty they have created in the industry and the reduction they will cause in our power generation market have already begun to take their toll."

Utilities are deciding to retire coal-burning power plants because of the costs they would face to keep them in service under pending emissions rules, Popovich said.

Kentucky Utilities has received permission to retire three of its coal-fired power plants in favor of natural-gas generation, and in May, Kentucky Power backed away from a plan to spend nearly $1 billion to install pollution controls at its coal-fired Big Sandy plant near Louisa.

The decision creates uncertainty about the future of the plant, which buys most of its coal from Eastern Kentucky.

A WAVE OF LAYOFFS

Coal employment had held steady or even grown in some Eastern Kentucky counties the past few years, but a wave of layoff announcements started early this year and just kept coming:

Fifty-two people at Enterprise Mining's surface operation in Knott County on Feb. 3. Two weeks later, 109 at Xinergy Corp.'s Straight Creek mine in Bell County. In April, 160 at Sapphire Coal in Letcher County.

June brought the crippling announcements that Alpha Natural Resources and Arch Coal Inc. would lay off more than 850 employees in Pike, Martin, Knott, Perry, Breathitt and Floyd counties.

Jeff Whitehead, head of a jobs program in 23 Eastern Kentucky counties, said the state has received notice of 1,800 coal layoffs this year.

But some companies don't report. The total number of layoffs easily could be 2,000, Whitehead said, which is what county officials estimated.

Statewide, coal-mining employment reached 18,600 in a March 2009 survey. The number was down to 15,600 in May — before more layoffs were announced — with Eastern Kentucky accounting for most of the drop.

"It's pretty devastating," said Whitehead, executive director of the East Kentucky Concentrated Employment Program.

There are opportunities in the region in skilled trades and health care, Whitehead said, but he acknowledged there is nothing to replace all the lost coal jobs, which paid an average of $70,000.

Many laid-off miners would like to find jobs at other mines, but there are few such jobs available, and the word is more mines will close.

Joe Caudill, 26, said he worked enough overtime to make $105,000 last year as a roof-bolter at an underground Arch Coal mine at Raven, in Knott County.

But early April 20, as he finished working the third shift, managers told Caudill and others they were being laid off because of the downturn in the market for coal to produce electricity.

Caudill says he will look for another mine job but might have to drive far from his home to find one, or move. And a lot of other people will be after the same job.

"It'll be tough," he said.

Coal has been so embedded in the culture of Eastern Kentucky that some miners haven't come to grips with the reality of perhaps having to do something else.

"That's what we do, is work in the mines," said Brad Tackett, 48, who was laid off from his job as an electrician at Arch's Raven mine.

The job losses will almost certainly aggravate a three-decade population drain.

Slone, the rock-truck driver who moved to Lexington after being laid off from a surface mine in April, didn't like moving away from family.

But with his bank account dwindling and poor prospects for a good-paying job to replace his $4,000 a month salary, he felt he had no choice.

"It was either stay down there and work for a grocery store or come down here," said Slone, 26. "There's not any work" in Eastern Kentucky "unless you're in the medical field."

BUSINESSES TAKE A HIT

Some laid-off miners are still being paid as part of their 60-day notice, so the full effect of the layoffs hasn't hit.

But business owners said they can tell a difference.

Lola Slone and her brother, Garfield Slone, run a small store at Pippa Passes that their parents started more than 60 years ago. It's on the road to the complex where Arch Coal began cutting more than 250 jobs in June.

Before the layoffs, miners would stop in for gas, soft drinks, snacks, smokeless tobacco or a Red Bull energy drink, but business has slowed noticeably since then, Slone said.

"It'll get worse after they've drained out their unemployment," she said.

Nearby at Topmost, Robin Mullins said she has seen a drop in business at her Beaver Creek Restaurant, where a sign over the counter says "Proud to be a coal miner."

Arch Coal employees used to come in regularly, and employees from an underground mine and prep plant sometimes got lunches to go, but Arch idled those operations.

Mullins said she had heard about two miners who are going to try to scratch out a living painting cars. She knows of one couple who moved to Colorado.

"There's not any work around here," she said. "It's going to affect everybody."

The loss of coal production and jobs won't just hurt families and businesses. It probably will cause cuts in government services, too.

Knott County Judge-Executive Randy Thompson said he budgeted $2.9 million in revenue this fiscal year, which started July 1, from the tax on mining and processing coal and natural gas. He thinks the county will be lucky to get a third of that.

"We're going to be in a dire situation," Thompson said.

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