By Taylor Kuykendall

The U.S. coal industry, lately struck with bad news nearly every day, was handed a rare victory from the nation's highest court Feb. 9 when a panel of judges stayed the Obama administration's Clean Power Plan though relief could be far from guaranteed.

The coal industry and its supporters celebrated the move with statements soon after the U.S. Supreme Court order staying the president's policy to address power sector carbon dioxide emissions. Murray Energy Corp., a leader in litigation against the U.S. EPA on behalf of the coal sector, called the ruling an indication the Supreme Court would ultimately overturn the Clean Power Plan. American Coalition for Clean Coal Electricity President and CEO Mike Duncan agreed, saying his group is confident the regulation will be rejected.

"We are pleased the Supreme Court took this unprecedented step to protect the states from further economic harm while the courts are deciding whether the administration's Power Plan is unlawful and unconstitutional," Duncan said.

West Virginia Attorney General Patrick Morrisey, who has led the legal battle against the EPA, applauded the ruling in a press conference Feb. 10. He said the ruling tells states that are working on their implementation plans to "put down your pencils."

"I would recommend states and legislatures across the country do not engage. … There is no reason to expend precious resources for policies that will never become final," he said.

Wall Street seemed skeptical the rule would lead to much of a recovery for coal in the near-term, however, as U.S. coal equities were mostly sluggish in morning trading the day after the announcement. Moody's analyst Anna Zubets-Anderson told S&P Global Market Intelligence that while it is a bit early to see the impact of the stay, the ruling is unlikely to mean much in terms of recovery or opportunity for coal producers who are mostly suffering due to natural gas prices.

"It's always been our position that the Clean Power Plan pretty much kind of locked in the decline of coal that was already happening due to natural gas prices. … Utilities are more likely to invest in natural gas plants and no one is really investing in coal plants because nobody knows what the regulations are going to be forward," Zubets-Anderson said. "The regulatory uncertainty is bad enough. The environmental pressure is bad enough. The fight that kind of plays out in the global political scene over the climate — that's already pressure enough. It's enough to lead utilities to invest in alternative capacity."

She said that while the Clean Power Plan put a sort of long-term limit on potential coal demand, the environmental and regulatory pressure is unlikely to go away. She added the ongoing, secular decline of coal is likely to continue regardless of whether the Clean Power Plan is upheld, vacated or modified.

"The specifics of how that plays out in the court — it's almost just details," Zubets-Anderson said, adding that coal is likely to continue its decline as long as natural gas prices stay low.

While a rejection of the Clean Power Plan may open the door for some upside in coal demand, particularly if natural gas prices were to recover from historic lows, the stay's immediate impact on the sector is likely muted. FBR & Co. analyst Benjamin Salisbury said in a Feb. 10 note the ruling amplifies FBR's view the rule is vulnerable to legal review.

"The decision is likely to halt nascent efforts to comply with the rule, including development of state plans and investments in alternatives to coal," Salisbury wrote. "Opponents argued that, even though implementation is not until 2022, operators would need to begin infrastructure investment plans immediately because of the long lead time to switch generation to natural gas or to renewables."

The report states FBR is maintaining a negative-2% terminal EBITDA growth rate across the thermal coal industry.

"While we do not expect any improvements to our near-term outlook for coal producers under coverage, the stay could potentially change the long-term perception towards, and the ability of, coal producers regarding maintaining meaningful market share as a fuel for domestic electricity generation," Salisbury wrote.

BMO Capital Markets Corp. analyst Michael Worms said many were "surprised" by the Supreme Court stepping in to stay the rule and added that implementation is likely at the least, delayed by the decision as it is held in jeopardy.

At a recent energy conference Murray Energy CEO and President Robert Murray indicated that domestic U.S. coal production could fall to 540 million annual tons if the rule is not overturned. However, even if the rule is overturned, Murray says U.S. coal production was likely to fall to about 650 million tons by 2020 anyway.

"Murray Energy does not see any relief relative to the lack of American or international coal markets and prices until 2018, at the earliest," Murray said. "Low natural gas prices, the decline in domestic and international coal demand, the presence of low-cost coal producers emerging from bankruptcy, and off-shore coal producers with favorable exchange rates will continue to prevail."

Peabody Energy Corp., the nation's largest coal company, also was part of the litigation against the Clean Power Plan. Peabody said it believes there are other opportunities for addressing climate change, including efficiency improvements at existing plants, deploying advanced coal plant technologies and advancing policies and investments to commercialize nascent coal technologies such as carbon capture and storage.

"Peabody believes that technology is the best path toward reducing greenhouse gas emissions over time," the company said in a Feb. 9 statement.

Late last year, a coalition of coal industry representatives presented a paper to the U.S. Department of Energy arguing for policy parity for coal technologies that includes subsidies and other incentives already given to renewable energy technologies to develop carbon capture and storage and other coal-related technology. Sen. Joe Manchin, D-W.Va., recently made a similar call for a focus on technological solutions that may preserve coal's future and jobs in states like West Virginia when he visited Longview Power LLC's advanced supercritical coal plant.

Many hearing the news are hoping the ruling could be the first step in resetting the country's energy policy to something that has room for coal.

Morrisey wants the stay to "reverberate" across the state and give West Virginia "an opportunity to begin its comeback and stop some of the bleeding" inflicted by the Obama administration. West Virginia Del. Randy Smith, a Republican and active coal miner, joined Morrisey's news conference and thanked him for his efforts.

"This isn't going to be a fix-all cure overnight, but it gives us hope and gives us something to work for and continue to fight for," Smith said.

West Virginia Coal Association President Bill Raney said the stay gives the state "breathing room" to create jobs.

"Our mining families wake up to gloom and doom and every single day," Raney said on a conference call. "Amidst all that negativity, this truly provides a little bit of brightness for their day today. There's certainly an opportunity to maybe mitigate and maybe stop the freefall our industry is in as a direct result of policies coming out of D.C. and in particular this federal administration. It won't mean that miners will return back to work today, but what it will mean is that our coal-fired utilities and our fleet of utilities around the country can immediately reconsider their fuel supplies and short-term and long-term plans for consuming energy."