Coal miner exodus pressures industry
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Hang out with enough coal miners and chances are you'll be attending quite a few retirement parties in the next couple years. But the exodus of workers who started going underground 40 years ago has left coal companies with little to celebrate.
Hiring trends that date back to the Nixon administration have resulted in a disproportionate number of older workers in mines across Pennsylvania and the rest of the nation. Now, with those workers ready for their retirement watches, employers are figuring out who to replace at a time when king coal's been knocked off its throne.
Experts say the trend is hitting when the industry -- and its employment numbers -- are in flux due to increased competition from cheap shale natural gas, unpredictable international demand and costly retrofittings required by recent government regulations. The disproportionate amount of older workers also has strained weak pension plans at major companies, appearing on balance sheets and in bankruptcy filings as a hazardous expense. Meanwhile, companies in Pennsylvania and elsewhere are ramping up recruiting efforts to fill the positions vacated by as much as 75 percent of the workforce.
The retirement of older workers is especially acute in Appalachia, where some of the country's most robust coal mines and communities are located. Pennsylvania is the fourth largest coal-producing state in the country, according to the U.S. Energy Information Administration, and the National Mining Association says the average U.S. worker is about 45 years old and earns about $77,000 per year. The average American coal miner already has been on the job for 20 years.
Pensions and other post-retirement costs have started to affect bottom lines: In its most recent earnings report, Alpha Natural Resources of Bristol, Va., said such costs totaled more than $1.18 billion in the third quarter alone.
When Patriot Coal filed for bankruptcy last July, the St. Louis-based company, which has operations across Appalachia, called pension and health care costs for its workers "unsustainable labor-related legacy liabilities" in its report to the judge. The United Mine Workers of America have since sued Patriot over such benefits, and UMWA spokesman Phil Smith said a bankruptcy ruling that allows Patriot to trim pension expenses would affect workers across multiple companies.
That's because Patriot and other firms pay into the UMWA pension pool, and the removal of Patriot's billions in payments would strain the other paying companies at a time when the pension, like many others, has had a cash flow problem since the stock market plunge in 2008.
Pension issues were integral in the UMWA's major contract negotiations in 2011. The next set of major negotiations will come up in 2015.
The exodus of retirees began about seven years ago, Mr. Smith said, and the younger replacements already have caused the average worker age to drop from about 50 years old to 30 years old at some operations.
At Consol Energy in Cecil, the miners are primarily split into two demographics: the older workers expected to retire in the next several years who account for about 75 percent of the workforce, and younger employees who have recently joined the industry, said Mark Hrutkay, director of human relations.
The current age disparity has its roots in the 1970s, said Mr. Hrutkay, when long-wall mining technology required fewer workers at operations. As the technology developed over the next couple decades, an entire generation opted out of an industry that suddenly didn't need the number of employees it once did.
At the same time, a reduction in coal use overall led to a drop in production and closing of mines nationwide, said Luke Popovich, spokesman at the National Mining Association. The shuttering of less-efficient mines contributed to the industry's boom-bust reputation, and deterred younger workers from going into the unpredictable field.
Consol executives who noticed the age gap in its workers in the late 1990s, began plans in the early 2000s to replace the retiring employees, many of whom leave the company at an average age of about 60 years old, Mr. Hrutkay said. New workers started coming on in 2002 to fill positions expected to open up due to retirements.
Consol expects about 1,500 new workers to come on board over the next three years -- an addition that is expected to replace retirees at a nearly 1-to-1 ratio, Mr. Hrutkay said.
That's only the case with the underground mining workers. Retiring support staffers -- those who work aboveground at Consol -- are not as likely to be replaced, he said.
A host of economic factors have made it difficult for the coal industry to anticipate how market demands will influence the number of new workers it needs.
The top culprits: shale gas and new regulations that "we could not have foreseen three to four years ago," Mr. Popovich said.
Natural gas prices have plummeted as development opened up in Pennsylvania's Marcellus Shale and other resource-rich formations. The savings are especially embraced by large industrial electricity users, who have lead the shift away from coal-fired power plants toward gas-powered ones.
Estimates vary on how the use of coal and gas will ebb and flow in the next couple years, but gas's bargain has certainly compounded problems faced by coal-powered plants, which have been the subject of regulatory scrutiny over the past several years.
Environmental Protection Agency regulations that require air emission upgrades to coal-fired power plants have been blamed for the shuttering of some operations that weren't worth the cost of retrofitting.
At the same time, the constant fluctuations of the international market have offered some hope to the coal industry.
Demand for steam and metallurgical coal has risen alongside economic growth in China and India. Even Japan -- not seen before as a major coal player -- has increased imports as the country seeks alternatives to nuclear power in the continued wake of the nuclear meltdown at the Fukushima plant in 2011.
"To what extent will that offset the declines in the demands for employees? It's just really too early to make an accurate prediction," Mr. Popovich said.
First Published January 20, 2013 12:00 am