Wyoming is facing a potential crisis. Coal mines have shut down, hundreds of people are out of work, unemployment offices are overwhelmed, and there appears to be worse to come.

The coal industry, long seen as a friend and economic linchpin in the state, is falling apart, and the very communities that have supported it most are getting screwed over in the process.

This wasn’t supposed to happen in Wyoming. After all, it’s not like Appalachian coal country (West Virginia, eastern Kentucky, and Pennsylvania, along with eastern Ohio and parts of Alabama, Maryland, Tennessee, and Virginia).

Appalachia, which has been ground into codependent poverty by the coal industry over the course of a century, has been declining, in coal output and employment, for decades. Lately it has only gotten worse, as companies declare bankruptcy, executives get healthy bonuses, polluted coal mines are abandoned, and miners and retirees are denied long-promised health benefits and pensions.

But it has long been industry conventional wisdom that Western coal would continue to prosper, at least for a while. The coal boom in the Powder River Basin — the largest coal basin in the US, the source of 40 percent of American coal, spanning northeast Wyoming and southeast Montana — dates back to the early 1970s. It has resulted in a few large companies with deep local roots, their taxes funding infrastructure and schools. Their steady profitability has made coal the heart of several Western communities. There are 13,000 coal-dependent jobs in the PRB.

It’s beginning to look like conventional wisdom was wrong. Western coal is declining too, and as it does, vulture capitalists are buying up mines, squeezing out the last bit of profits, and declaring bankruptcy, leaving behind an environmental mess and workers without jobs or pensions.

It’s shaping up to be Appalachia all over again, in communities that were told it would never happen.

“While the signs have been there for a while, Wyoming’s leaders have done little to pivot our state’s economy away from this volatile industry,” writes the Casper Star-Tribune editorial board. “But there’s no more time. The fallout from the inevitable bust ... would be widespread and devastating to the entire state.”

We’ll start by explaining the most recent news and work our way back to the big, awful picture for the coal industry in the US.

Two Wyoming mines just went dark, with no warning

Last Monday, the country’s sixth-largest coal producer, the mining company Blackjewel LLC (and its parent company Revelation Energy), struggling with mounting debts and unanticipated expenses, declared Chapter 11 bankruptcy. Immediately thereafter, it was denied an emergency line of credit by a bank and abruptly shut down its Eagle Butte and Belle Ayr mines. Around 600 Wyoming miners were left out of work, with no advance warning, and the mines were left unstaffed.

Robert Godby, an energy economist at the University of Wyoming, described it as “a heart attack in the Powder River Basin.” Eagle Butte and Belle Ayr are the fourth and sixth top-producing mines in the US; Belle Ayr, just south of Gillette, Wyoming, was the first big mine to open in the PRB, back in 1972.

In some cases, the miners’ final paychecks, cashier’s checks flown in at the last minute, were held by banks or failed to clear. Local unemployment centers were almost immediately overwhelmed and reportedly ran out of materials on retraining within 24 hours. (Blackjewel paychecks are reportedly bouncing in Kentucky as well.)

Scenes from a public meeting about the recent Blackjewel mine closures at the Campbell County Courthouse today. The Eagle Butte and Belle Ayr mines near Gillette closed and sent roughly 700 workers home after Blackjewel LLC filed for bankruptcy yesterday. pic.twitter.com/5yJNmJgVYc — Josh Galemore (@joshgalemore) July 2, 2019

On Wednesday, a West Virginia bankruptcy judge denied a $20 million refinancing plan, but approved $5 million in emergency funding, not to reopen the mines but to monitor them for safety purposes. One condition of the loan was that Blackjewel CEO Jeff Hoops resign, that all members of his family resign, and that none of them be allowed access to any Blackjewel business or bank accounts. (More on Hoops later.)

For now, the restructured company is desperately seeking financing. If it does not succeed, it may be forced into Chapter 7 bankruptcy (liquidation), at which point it, or its creditors, would be forced to sell the mines. If they don’t find a buyer, the mines could be shut down for good, at which point environmental reclamation would begin. Some 1,700 jobs are on the line across the company.

The Wyoming Department of Environmental Quality (DEQ) told Wyoming Public Media that Blackjewel has sufficient bonds to cover reclamation, but community advocates are skeptical. Recent tax forms reveal about $237 million in bonds; it’s uncertain whether that will cover reclamation, which could take up to 20 years.

Just a few months earlier, in May, another big PRB mining company, Cloud Peak Energy, which owns three giant mines in Montana and Wyoming, also declared bankruptcy. Its fate offers a preview of what lies ahead for Blackjewel.

There were winners in the Cloud Peak bankruptcy: the CEO and top executives, the very crew that drove the company into a ditch with gross errors in judgment, will receive “retention” bonuses and emerge from the process wealthier than ever, no worse for the wear.

The losers, as Clark Williams-Derry explains in a post for the think tank Sightline, include everyone else: all the vendors to whom the company owes money, from the unsecured bondholders at the bottom of the stack (including many small local suppliers) to the secured bondholders above, who may end up stuck with the company’s near-worthless mines; miners, who are likely to see health benefits and pension plans canceled; and shareholders, who will be wiped out.

That’s more or less the model, and it’s not new.

Before Cloud Peak, in late 2018, it was the large Western mining firm Westmoreland going bankrupt. And before that, in 2015 and 2016, three of Wyoming’s biggest coal producers — Peabody Energy, Arch Coal, and Alpha Natural Resources — declared Chapter 11 and underwent restructuring. Almost 500 workers lost their jobs on a single day in 2016.

I wrote about the Peabody bankruptcy here and here and the Alpha bankruptcy here and here, but broadly speaking, their story is the same as Cloud Peak’s: “restructuring” left executives enriched and everyone else, including workers, hosed.

And here’s a funny story.

As part of Alpha’s restructuring, it spun off a new company, Contura, which took over its two Western crown jewels: the Eagle Butte and Belle Ayr mines (yes, the very mines that just closed). Contura quickly turned around and sold/gifted those mines to Blackjewel, a newly created subsidiary of Revelation Energy, an Appalachian mining firm owned by Hoops. In doing so, Contura expected to write off $400 million in taxes and $200 million in reclamation liabilities.

In response to the Blackjewel mine layoffs that are affecting Campbell County, Wyoming Food Bank of the Rockies will host two mobile pantries from 1-6 p.m. July 29 and Aug. 19. https://t.co/5v3ZJ1wfdQ — Gillette News Record (@The_News_Record) July 7, 2019

Basically, as the industry contracts, it’s a game of hot potato, as failing mines get passed around to increasingly fly-by-night companies that extract a little value before passing them along or going under.

As one company after another “restructures” through bankruptcy, they ditch social and environmental obligations, even as executives prosper. It’s vulture capitalism, stripping everything down to the remaining valuable assets, the remaining mines and coal, and casting everything else, including mining communities and the grotesquely scarred landscape, overboard.

Why is this happening?

Coal is going out faster than anyone expected, and it’s leaving wreckage behind

Coal’s ongoing demise has been written about a great deal, but there are some subtleties that help explain the current situation.

The big coal bankruptcies in 2015 and 2016 were not primarily due to coal getting beat on US electricity markets (though that is also happening). Rather, those companies made extraordinarily large and ill-advised bets on metallurgical coal, a special variety best adapted to steelmaking, meant for export abroad. Peabody, Arch, and Alpha all went heavy into metallurgical coal in the early 2010s, on the assumption that China would grow at its headlong early-2000s pace forever.

China ... didn’t. And those companies — or rather, their employees and shareholders — got hosed.

PRB coal was supposed to be somewhat immune to that, as it is primarily used domestically, in US coal-fired power plants.

While PRB coal is not as energy-dense as Appalachian coal, it has lower sulfur content, which makes it easier for power plants to comply with modern pollution standards. Consequently, power companies have been moving their business from Appalachia to the PRB for years.

But betting on US coal demand isn’t working out either. Thermal coal (the kind used for electricity) has been on the decline in the US, as cheap renewables and natural gas eat into coal’s market share, and the PRB has declined with it. As Ben Storrow reports for E&E, production in the basin fell “from 462 million tons in 2011 to 324 million tons last year.” Now, as coal plants close left and right, the latest projections have it heading to 175 million, well under half its heyday.

Still, most industry observers assumed a longer exit path. “Up until a few years ago, everyone, including me, knew that thermal electricity from coal was declining, but the Powder River Basin stood as the healthiest of the coal-producing areas,” Godby told the Casper Star-Tribune. “People in Wyoming took that for granted.”

Few imagined that coal’s decay would continue and accelerate to the point that producing mines might become worthless. That’s why regulators allowed shady operators from Appalachia to buy up the Western mines from the bankrupt companies. (More on that below.) They didn’t see the risk. The mines were supposed to be fine.

Yet coal’s decline has proven faster than anticipated, and PRB companies, accelerated by mismanagement, are dropping like flies. The market is turning away from their product.

Now Wyoming is facing another boom-and-bust episode, shaping up to be much the same as the last one. In a great piece that ties this story together as well as anything I’ve read, Bob LeResche of the Powder River Basin Resource Council recounts some recent Wyoming history:

When the coal bed methane boom went bust a few years ago [in 2015], big, responsible operators rushed to sell — or often give — multiple methane leases, hundreds of wells and infrastructure to newly hatched and poorly capitalized LLCs created by ‘get-rich-quick’ artists. These companies also relieved the original owners of huge liabilities: for taxes, surface use agreements, royalties, idle well bonds. Most of the new operators sold what gas they could and then quickly defaulted, leaving landowners with idle wells, eroded and disrupted surface lands, noxious weeds, uncollected royalties and rentals. They left the State of Wyoming with thousands of abandoned orphan wells and the need to spend tens of millions of dollars to plug and rehabilitate them.

Now Wyoming legislators, regulators, and judges show every sign of sleepwalking into another round of the same issues.

It is no coincidence that this happened before in Wyoming, that it happened in Appalachia, that it’s happening on indigenous lands in Canada, that it’s happening in Nigeria and Angola. This is the resource-extraction model. It’s known as the “resource curse” — economies rich in natural resources and dependent on export commodities tend to grow more slowly and perform worse on a range of social indicators, and they are left worse off when the resources dry up. It’s true at the international level, but also within countries, states, and even, to some extent, cities.

Resources that can be mined or drilled are a boon to wealthy investors, but rarely to the people and land they lie beneath. Now the curse has come to Wyoming, and feckless leaders are letting it happen.

Coal will go out doing what it always does: offloading costs

What’s unfolding in Wyoming is a perfect example of a business model that has already been used in Appalachia, for old California oil wells, for offshore oil wells, and will likely be used soon for shut-down coal plants and other abandoned fossil fuel infrastructure. It’s a way for industries that lived by rent-seeking to die by it.

First, the big companies went bankrupt and were restructured. They were desperate to get rid of the mines — and the associated health, pension, and reclamation obligations. So in came the scavengers, to buy those mines for cheap, with vague promises to renew them.

One of those scavengers was Jeff Hoops. His company Revelation Energy LLC bought up hundreds of small mine permits in Appalachia and is known for a long history of safety and environmental violations. (According to an April investigation by the Ohio Valley Resource, Hoops faces more than $926,000 in delinquent mine safety fines.)

He spun off an affiliate, Blackjewel LLC, just to buy the two mines from Contura (the shell company created by Alpha to offload them).

A snapshot of Blackjewel's Virginia holdings, including 19 permits it holds & 1 it operates. Thom Kay of Appalachian Voices (the source of this info) suggested that it looks like Blackjewel was a destination for liabilities to be off-loaded through Chapter 11 bankruptcy. pic.twitter.com/70fC93WFhq — Mason Adams (@MasonAtoms) July 3, 2019

Another is Tom Clarke, a failed nursing home entrepreneur from Virginia who turned to buying up distressed iron and coal mines a few years ago, promising to clean them up and turn them around, and then ... not. He was behind the high-profile bankruptcy of Mission Coal last year and has been involved in at least 10 bankruptcy cases over the years. Nonetheless, the bankruptcy court allowed him to buy the Kemmerer mine (in southwest Wyoming) from Westmoreland Coal Company, the 150-year-old company that went bankrupt last year. In buying it, he escaped the mine’s union contract and its pension obligations. [Correction, 7/10/19: Turns out Clarke did not purchase the mine; it fell through at the last minute, when it became clear he hadn’t secured reclamation bonds. Westmoreland asked for more collateral and Clarke bailed. Thanks to Wyoming Public Media reporter Cooper Katz McKim for flagging it.]

That is the model: buy the mines (or assets) for cheap from a company in restructuring, thereby escaping health, pension, and environmental obligations; take out huge loans to keep the mines going; pay yourself and your executives handsomely from those loans; and then, when the mine goes under anyway, pay yourself additional bonuses for “managing” your own bankruptcy and walk away richer than you started.

(Hoops isn’t allowed to run Blackjewel any more, but he’s plenty rich. He will likely still be able to build the 189-acre resort he has planned for his hometown of Milton, West Virginia, complete with a 3,500-seat replica of the Roman Coliseum. It will be called — and I am not kidding — Grand Patrician. According to Hoops, though, “no one is hurting more than me.” According to Gillette Mayor Louise Carter-King, “If I were him, I wouldn’t show up in Wyoming.”)

A #Blackjewel employee facebook page posted what's allegedly a letter from Jeff Hoops, attempting to explain what led to the bankruptcy. The comments from employees calling him out on his BS are right on. https://t.co/FC13Y5tzkg pic.twitter.com/NCJsraqWHi — Kanawha Forest Coalition (@KanawhaForest) July 4, 2019

“Corporations have hacked bankruptcy law,” says Williams-Derry. “Many insiders walk away from bankruptcy with a decent-size payday, with ‘key employee retention plans’ and bonuses to keep the management team in place during bankruptcy. And for the C-suite, even if they don’t get rich, there’s no permanent downside to bankruptcy.”

Why are courts and regulators letting this happen?

Again, the case of Blackjewel is instructive. By the end, it had accrued $500 million in debts — to local vendors ($156 million), the Bureau of Land Management (BLM) for royalties, the Mine Safety and Health Administration (MSHA) for violations, and several states for back taxes ($6 million in Kentucky; $1.6 million Virginia; $17 million in Campbell County, Wyoming). The Eagle Butte and Belle Ayr mines alone owe $60 million in royalties and $37 million in county taxes.

All those institutions bent over backward to keep the house of cards upright. They extended Blackjewel’s loan payments, put the company on a royalty payment plan (“the BLM is very accommodating when you can’t make your payments,” Hoops said in bankruptcy court), and watched as payroll taxes were withheld but not remitted and 401(k) payments withheld but not deposited.

Hoops did admit that he frequently transferred money between his personal account and Blackjewel. Transferring money out of an insolvent company in this way is called a "preference" payment. It is decidedly not ok. From the hearing: pic.twitter.com/7Wj0fwlOV6 — Clark Williams-Derry (@ClarkWDerry) July 7, 2019

Regulators and courts seem frozen like deer in headlights, unable to wrap their heads around what’s going on. They can understand companies going bankrupt, but they cannot fathom that mines still producing coal might be worthless. “The rules were designed to deal with the failure of individual small mining companies,” says Williams-Derry. “But the idea that the industry as a whole might collapse ... it’s just completely absent.”

And everyone fears that cracking down on these companies might only hasten the loss of jobs. So the vulture capitalists keep getting away with it.

Coal has always lived by rent-seeking; now it will die rent-seeking

In Wyoming, leadership stands by gawking as the resource curse runs its course yet again. And the very Republican politicians who have power in those states, who made cozy deals with wealthy coal executives, who have systematically lied to their constituents about the fate of coal, are ... doubling down on their lies.

So here’s Wyoming Rep. Liz Cheney, ludicrously (still!) blaming “Obama’s War on Coal” for the mine closures and pledging “to stop the coal company exodus.” Oh? How does she plan to do that? She doesn’t say. She just repeats the latest administration propaganda: “Ensuring the reliability of our electric grid by supporting coal — a crucial baseload power source — is an economic and national security priority.”

Meanwhile, Republican Senate Leader Mitch McConnell continues to block consideration of a bill that would ensure miner pensions, despite pleas from West Virginia Democrats.

The truth is, the US coal industry has never been a capitalist enterprise. In a purely capitalist system, a business pays all its own costs and keeps all its own profits.

The business model of the coal industry, as with most extractive industries, wherever they operate, is to capture the profits while avoiding the costs. That’s why they appear profitable as long as they do: Their steadily rising costs, in terms of humans (deaths, injuries, illnesses like black lung), the local environment (scarred land, dirty water, air pollution), and the atmosphere (climate change) are kept off their books. The public pays for those. The business model only works as long as the industry is able to offload costs.

Republicans (along with a shrinking number of Democrats from coal states) help coal executives offload costs — help them fight unions; diminish health, safety, and pollution regulations; and avoid their social and environmental responsibilities. That has always been the role of politicians in coal states. It’s the only way coal companies ever stay in business, which is one reason infamous coal CEO Bob Murray is hosting a fundraiser for President Trump later this month. Calling it “capitalism” would make Adam Smith roll over in his grave.

Extraction industries are largely a scam through which wealthy people remove value from a region and leave behind social and environmental ruin. It’s happening with coal, in Appalachia and now in Wyoming, but the model is not coal’s alone. It’s happening with oil and gas as well. It is the nature of an extraction economy.

Fossil fuels rest on a foundation of colonialist exploitation and rent-seeking. That’s how they came in; that’s how they’ll go out.