Would-be Coal Exporters Scheme To Avoid Paying Worker Benefits

Union pensions and healthcare at risk from Northwest terminal backers.
This post is part of the research project: Northwest Coal Exports

This is appalling. Amid all the “jobs, jobs” cheers from Northwest coal export proponents, two of the biggest players in the debate have embarked on a scheme to weasel out of paying retirement and health benefits to their workers.

In a nutshell, Peabody Energy and Arch Coal spun off companies that became Patriot Coal, saddled them with as much of their worker-benefit and environmental liability as they could get away with, and then watched as Patriot went bust. Now, the United Mine Workers union is calling them out in court.

Here’s the nickel version of events via the Charleston Gazette:

UMW officials say Patriot was essentially a “company created to fail,” to give Peabody Energy and Arch Coal a way to shed obligations to fund union pensions and health-care benefits in the nation’s eastern coalfields, while profiting from their giant, non-union surface mines out west.

Five years ago, Peabody formed Patriot as a spin-off company where Peabody tucked union mines in West Virginia and the Midwest, along with pension and health-care obligations for union retirees. Patriot later bought another company, Magnum Coal, which had been similarly spin-off by Arch Coal when it got rid of most of its Appalachian operations and their related pension and health-care liabilities.

“When Peabody Energy and Arch Coal spun off their union operations into companies that eventually became Patriot Coal Company, they also spun off more than $1.3 billion in promised health care obligations to coal miners who put their lives and health at risk every single day working for Peabody and Arch,” the union said in a petition circulated at this week’s meetings.

The magazine In These Times has a must-read account of events pointing out that:

Oddly, for a 5-year-old company, Patriot wound up with nearly three times as many retirees as active employees, more than 90 percent of whom never worked for the company. Overburdened by its debts, in July of 2012 Patriot declared bankruptcy.

In bankruptcy court, Patriot is seeking to be released from its pension and retirement obligations to some 10,000 UMWA retirees, covering more than 20,000 beneficiaries which total more than $1.3 billion.

The investor community is also taking note of the scam. The website Seeking Alpha has an aptly-titled article, “Patriot Coal: The Vulture Has Landed” acknowledging the same features:

The primary legacy liabilities that are of concern at this point include postretirement benefit plans, workers comp, selenium water treatment obligations, end-of-mine closure costs, reclamation obligations, underfunded pension and obligations to an industry fund.

In short, the now-bankrupt Patriot is asking the courts to lift the very obligations to workers and legally mandated environmental cleanups that it cleverly took off the books from Peabody and Arch.

Keep in mind that Peabody would be the main beneficiary of the coal terminal proposed for Cherry Point, while Arch has a 38 percent stake in the facility planned in Longview.

It’s one thing to make rosy promises about new coal-handling jobs and another to examine the facts about the industry. The truth is that Powder River Basin coal mining is 90 percent non-union; coal infrastructure investments create very few jobs; and the major coal industry backers of these proposals do not treat their workers honorably.

As Seeking Alpha sagely notes:

There is a lot to be learned from the Patriot Coal experience. Investors should continue to be diligent in their analysis and not believe this situation is an anomaly for the coal industry.

That’s a lesson Northwest port communities should take to heart.

 

Update: Fairness at Patriot, an organization sponsored by United Mine Workers of America, has produced a couple of damning TV spots now running in St Louis, “We’re People” and “The Best Years.”

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Comments

  1. Terry Wechsler says:

    Great summary, Eric. The other lesson for us to take away in the NW is how these companies use subsidiaries, given that all of the terminal “proponents” are subsidiaries created solely for a specific terminal. Why, the first action the UMWA filed in the Patriot bankruptcy case was one to change venue. Peabody had created two subsidiaries “based” in New York a year before filing the Patriot bankruptcy, claiming NY had jurisdiction. The UMWA succeeded in getting venue changed to a state where Peabody actually mines coal. Trust coal companies? Yeah, right.

  2. John Jordan-Cascade says:

    GREAT article! I’m curious to know why more activists are not calling for an end to all federal subsidies for coal mining! Shady practices like those outlined in your article are yet more reasons for ending this welfare for criminal behavior. It is an outrage, pure and simple!

    • Wells says:

      To benefit all, the following short assessment can be constructive:

      Big Coal, Big Ports and Big Rail hauling Big Oil and Big Auto, are NOT planning either Bellingham nor Coos Bay. They’re not, honestly believe me. The only sensible option is Longview with companion barge to St Helens. OKAY?

      They are causing a stir.
      A nasty stir. Muddy the waters.
      Take it from a not too much older
      transportation planner with a good record.
      Washington State & Seattle bore tunnel is
      is SOOOOOOOOOOOOOO WRONG. F******
      (forgive the AmericanSlang, sorry,
      but Damn those sorry a**** in DOT and Transit halls)
      You stop that F-er DBT or YOU will be sorry.
      I feel responsible, but you won’t consider
      the unstable soil consequence plus,
      the seawall plan allows liquid permeation.
      More soil siltration, void formation, sinkhole damage.
      Are you fn kidding me?

      Give that boy a medal, the overweight bearded boy,
      with a respectable buzz cut.
      He doesn’t always trust incompetent DOT heads.
      His gut instinct still tells him its wrong….

  3. Paul K. Anderson says:

    Next thing they’ll probably try is having a friendly legislator introduce a bill where all taxes generated by these private ports could only be used on infrastructure or projects supporting the private ports. Whoops! Already tried.

    Or maybe they’ll try and create a false impression of actual support in the port communities – called astroturfing (commonly known as fibbing) to influence decision makers! Whoops! Already done!

    Or! Maybe they will fund a port like GPT at Cherry Point by having Goldman Sachs bundle all the costs of the project into marketable securities and sell those to pension funds…..how ironic if one of these coal company’s union worker’s pension funds had actually done that…..

    And finally, what if a coal mining company, who may have huge strip mines overseas, got a private port built in Washington with little or no investment or risk and then came back and said they would rather sell their coal from Australia – because it is closer to their customers – unless they were given huge subsidies from Federal, State, and local governments?

    • Jeremy says:

      And it’s a good thing all that CO2 burned in China stays in China, and Americans can feel good about their declining CO2 emissions, having off-shored their manufacturing to somewhat more coal-happy countries, all the while still burning through more oil than the next three highest nations combined… fly, ye three hundred million Icarus, fly!

  4. Beth Sutton says:

    Eric, your account deserves clarification. Patriot is an independent company and has been for more than five years. Patriot was a highly successful company at the time of, and after, the spin-off. In fact, its market value more than quadrupled in the period following the spinoff. Then a host of external events affected the company’s performance, including its acquisition of Magnum Coal, the global financial crisis, low natural gas prices and increased environmental compliance costs. This led to Patriot’s choice of bankruptcy in July 2012.

    The UMWA knew of, and consented to, key parts of the structure that allowed the spinoff to proceed. Today, the UMWA’s complaints should rest with Patriot, not us. Peabody, too, is a creditor in the bankruptcy.

    Peabody has lived up to all of its responsibilities, and intends to continue to do so. The outcome of this matter will be decided through the proper judicial process, and not through the airwaves.

    • Eric de Place says:

      Beth,

      Thanks for adding your voice to this thread. It’s useful to get Peabody’s official perspective on the events.

      For readers who may not know, Beth is Peabody’s Vice President for Communications and Community Relations.

      • Beth Sutton says:

        Thank you, Eric.

  5. Cave Johnson says:

    The problem here is not the creation of subsidiaries to isolate risky projects. That is a legitimate use of the incorporation process and allows older companies to remain innovative by isolating their core business from liability of risk new operations.

    The problem here is that corporations are allowed to create unfunded obligations and hold them on their balence sheet without funding them. The time to avoid this problem is when new subsidiaries are created. This process needs much more oversight to prevent this type of abuse.

  6. Philippe says:

    I hope this excellent post gets a lot of airwaves and buzz. Courts are one thing but there is also the court of public opinion and it can be even more powerful. That’s a damning story.

  7. Ross Macfarlane says:

    Great post, Eric. For anyone who wants more on the coal industry’s bad record with job creation, you can check out a post we did last month. http://climatesolutions.org/cs-journal/want-to-create-good-jobs-don2019t-count-on-coal

    • Wells says:

      To benefit all, the following short assessment can be constructive:

      Big Coal, Big Port and Big Rail hauling Big Oil/chemical, and Big Auto, are NOT planning either Bellingham nor Coos Bay. They’re not, honestly believe me. The only sensible option is Longview with companion barge to St Helens. OKAY? Why waste time?

      They are causing a stir.
      A nasty stir. Muddy the waters.
      Take it from a not too much older
      transportation planner with a good record.
      Washington State & Seattle bore tunnel is
      is SO WRONG. F****** (forgive the AmericanSlang, sorry)
      but damn those sorry a**** in DOT offices/halls)
      You stop that F-er DBT or YOU WILL be dead sorry.

      You must consider (reconsider?) the unstable soil consequence,
      plus the seawall plan that “allows Liquid Permeation”.
      Meaning: MORE soil siltration, void formation,
      sinkhole damage, building facade & foundation damage.
      Are you fn kidding me??!

      Give that boy a medal, the overweight bearded boy,
      with a respectable buzz cut.
      He doesn’t always trust incompetent DOT heads.
      His gut instinct still tells him its wrong….

      There is such a thing as “Too much education”

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