Item 1. Business
ITEM 1. BUSINESS.
Hallador Energy Company is a vertically integrated power and coal company with operations primarily in Indiana. The Company operates across multiple stages of the energy supply chain, from coal extraction to electricity generation and mines coal from the rich, high-quality, lower sulfur reserves found in the Illinois Basin (“ILB”).
Once the coal is mined by Sunrise Coal, LLC (“Sunrise”), the Company’s wholly-owned mining subsidiary, the Company processes and transports it to power plants, where it is used as a primary fuel source for generating electricity. Through its wholly-owned subsidiary Hallador Power, LLC (“Hallador Power”), the Company owns and operates the Merom Power Plant (“Merom”), a 1,080 MW net coal fired power generating station, consisting of two 590 MW sub-critical water tube drum type steam turbine generators. Unit 1 entered commercial operations in 1982 and Unit 2 in 1983. The units are dispatched to the Midcontinental Independent System Operator (“MISO”) interconnection. Hallador Power sells wholesale energy and accredited capacity to utilities within the MISO system through power purchase agreements (“PPA”) and other bilateral transactions. Merom is located in Sullivan County, Indiana, about twenty miles from Sunrise’s Oaktown Mining Complex. Sunrise also sells coal to other utilities in Indiana and throughout the southeast United States. In addition, it has a developed infrastructure for the transport of coal, including rail networks and truck loading systems, facilitating the efficient movement of the resource from the mine to its customers.
The vertically integrated structure allows the Company to control the entire process, from mining to power production, providing cost efficiencies, greater operational flexibility, and the ability to manage supply and demand within the energy market. Hallador Power has invested in technologies to reduce emissions and improve the environmental performance of coal-fired generation, particularly in response to regulatory pressures.
See “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ” for a discussion of our business.
Regulation and Laws
The electric power generation and coal mining industries are subject to extensive regulation by federal, state, and local authorities on matters such as:
● employee health and safety;
● mine permits and other licensing requirements;
● air quality standards and greenhouse gas emissions;
● water quality standards;
● storage of petroleum products and substances that are regarded as hazardous under applicable laws or that, if spilled, could reach waterways, wetlands, or groundwater;
● plant and wildlife protection, and historic and archeological site and cultural resource protection, that could limit or prohibit electric power generation, mining or exploration;
● restricting the types, quantities, and concentration of materials that can be released into the environment in the performance of electric power generation, mining, exploration or production activities;
● discharge of materials;
● storage and handling of explosives;
● wetlands protection;
● surface subsidence from underground mining; and
● the effects, if any, that electric power generation or mining activities, including coal combustion residuals, have on groundwater quality and availability.
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Failure to comply with environmental laws and regulations may result in the assessment of administrative, civil and criminal sanctions, including monetary penalties, the imposition of strict, joint and several liability, investigatory and remedial obligations, capital expenditures, interruptions, changes in operations, and the issuance of injunctions limiting or prohibiting some or all of the operations on our properties. The regulatory burden on fossil fuel industries increases the cost of doing business and consequently affects profitability. The trend in environmental regulation has been to place more restrictions and limitations on activities that may affect the environment, and thus, any changes in environmental laws and regulations or re-interpretation of enforcement policies that result in more stringent and costly obligations could increase our costs and adversely affect our performance. In addition, the electric power industry is subject to extensive regulation regarding the environmental impact of its power generation activities, which has also adversely affected demand for coal. It is possible that new legislation or regulations may be adopted, that existing laws or regulations may be interpreted differently or more stringently enforced, that existing regulations may be repealed or that the authority of current regulators may be reduced or revoked, any of which could have a significant impact on our mining or electric power generating operations or our customers’ ability to use coal. For more information, please see “Recent Regulatory Developments from the Presidential Transition” in this section, below, and the risk factors described in “Item 1A. Risk Factors” below.
We are committed to conducting electric power generating and mining operations in compliance with applicable federal, state, and local laws and regulations. However, because of the extensive and detailed nature of these regulatory requirements, including the regulatory system of the Mine Safety and Health Administration (“MSHA”), where citations can be issued without regard to fault and many of the standards include subjective elements, it is not reasonable to expect any electric power generating company or coal mining company to be free of citations. When we receive a citation, we attempt to remediate any identified condition immediately. While we have not quantified all of the costs of compliance with applicable federal and state laws and associated regulations, those costs have been and are expected to continue to be significant. Compliance with these laws and regulations has substantially increased the cost of electric power generation and the cost of coal mining for domestic coal producers.
Expenditures for environmental matters have not been material in recent years. We have accrued for the present value of the estimated cost of asset retirement obligations, power plant closing, and mine closings, including the cost of treating mine water discharge, when necessary. The accruals for asset retirement obligations, power plant closing and mine closing costs are based upon permit requirements and the estimated costs and timing of asset retirement obligations and mine closing procedures. Although management believes it has made adequate provisions for all expected reclamation and other costs associated with mine closures, future operating results would be adversely affected if these accruals were insufficient.
Electric Power Generation Permits and Approvals
Numerous governmental permits or approvals are also required for electric power generation operations, including coal-fired power plants such as Merom Generating Station. Applications for permits require extensive engineering and data analysis and presentation and must address a variety of environmental, health, and safety matters associated with electric power generation. These matters include air emissions, including greenhouse gas emissions, the management and disposal of coal combustion residuals and other wastes or materials, and wastewater effluent treatment and discharge, among others. Meeting all requirements imposed to address these matters may be costly and may delay or prevent commencement or continuation of power generation operations.
The permitting process for electric power generation operations can extend over many years as a result of necessary permit renewals and those permitting decisions can be subject to administrative and judicial challenge, including by the public. We cannot assure you that we will not experience difficulty or delays in obtaining electric power generation permits in the future or that a current permit will not be revoked.
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We are required to post bonds to secure performance under our coal combustion residuals landfill permit. Under some circumstances, substantial fines and penalties, including revocation of electric power generating permits, may be imposed under the laws and regulations described above and below. Monetary sanctions and, in severe circumstances, criminal sanctions may be imposed for failure to comply with these laws and regulations. Although, like other power generating companies, we have been cited for violations in the ordinary course of our business, we have never had a permit suspended or revoked because of any violation, and the penalties assessed for these violations have not been material.
Mining Permits and Approvals
Numerous governmental permits or approvals are required for mining operations. Applications for permits require extensive engineering and data analysis and presentation and must address a variety of environmental, health, and safety matters associated with a proposed mining operation. These matters include the manner and sequencing of coal extraction, the storage, use, and disposal of waste and other substances and impacts on the environment, the construction of water containment areas, and reclamation of the area after coal extraction. Meeting all requirements imposed by any of these authorities may be costly and may delay or prevent commencement or continuation of mining operations.
The permitting process for certain mining operations can extend over several years and can be subject to administrative and judicial challenge, including by the public. Some required mining permits are becoming increasingly difficult to obtain in a timely manner, or at all. We cannot assure you that we will not experience difficulty or delays in obtaining mining permits in the future or that a current permit will not be revoked.
We are required to post bonds to secure performance under our permits. Under some circumstances, substantial fines and penalties, including revocation of mining permits, may be imposed under the laws and regulations described above. Monetary sanctions and, in severe circumstances, criminal sanctions may be imposed for failure to comply with these laws and regulations. Regulations also provide that a mining permit can be refused or revoked if the permit applicant or permittee owns or controls, directly or indirectly through other entities, mining operations that have outstanding environmental violations. Although, like other coal companies, we have been cited for violations in the ordinary course of our business, we have never had a permit suspended or revoked because of any violation, and the penalties assessed for these violations have not been material.
Mine Health and Safety Laws
The Federal Mine Safety and Health Act of 1977 (“FMSHA”) and regulations adopted pursuant thereto, imposes extensive and detailed safety and health standards on numerous aspects of mining operations, including training of mine personnel, mining procedures, blasting, the equipment used in mining operations, and numerous other matters. MSHA monitors and rigorously enforces compliance with these federal laws and regulations. In addition, the states where we operate have state programs for mine safety and health regulation and enforcement. Federal and state safety and health regulations affecting the coal mining industry are perhaps the most comprehensive and rigorous system in the United States (the “U.S.”) for the protection of employee safety and have a significant effect on our operating costs. Although many of the requirements primarily impact underground mining, our competitors in all of the areas in which we operate are subject to the same laws and regulations.
FMSHA has been construed as authorizing MSHA to issue citations and orders pursuant to the legal doctrine of strict liability or liability without fault, and FMSHA requires the imposition of a civil penalty for each cited violation. Negligence and gravity assessments, along with other factors, can result in the issuance of various types of orders, including orders requiring withdrawal from the mine or the affected area, and some orders can also result in the imposition of civil penalties. FMSHA also contains criminal liability provisions. For example, criminal liability may be imposed upon corporate operators who knowingly and willfully authorize, order, or carry out violations of the FMSHA or its mandatory health and safety standards.
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The Federal Mine Improvement and New Emergency Response Act of 2006 (“MINER Act”) significantly amended the FMSHA, imposing more extensive and stringent compliance standards, increasing criminal penalties and establishing a maximum civil penalty for non-compliance, and expanding the scope of federal oversight, inspection, and enforcement activities. Following the passage of the MINER Act, MSHA has issued new or more stringent rules and policies on a variety of topics, including:
● sealing off abandoned areas of underground coal mines;
● mine safety equipment, training, and emergency reporting requirements;
● substantially increased civil penalties for regulatory violations;
● training and availability of mine rescue teams;
● underground “refuge alternatives” capable of sustaining trapped miners in the event of an emergency;
● flame-resistant conveyor belts, fire prevention and detection, and use of air from the belt entry; and
● post-accident two-way communications and electronic tracking systems.
MSHA continues to interpret and implement various provisions of the MINER Act, along with introducing new proposed regulations and standards.
In 2014, MSHA began implementation of a finalized new regulation titled “Lowering Miners’ Exposure to Respirable Coal Mine Dust, Including Continuous Personal Dust Monitors.” The final rule implemented a reduction in the allowable respirable coal mine dust exposure limits, requires the use of sampling data taken from a single sample rather than an average of samples, and increases oversight by MSHA regarding coal mine dust and ventilation issues at each mine, including the approval process for ventilation plans at each mine, all of which increase mining costs. The second phase of the rule began in February 2016 and requires additional sampling for designated and other occupations using the new continuous personal dust monitor technology, which provides real-time dust exposure information to the miner. Phase three of the rule began in August 2016 and resulted in lowering the current respirable dust level of 2.0 milligrams per cubic meter to 1.5 milligrams per cubic meter of air. Compliance with these rules can result in increased costs on our operations, including, but not limited to, the purchasing of new equipment and the hiring of additional personnel to assist with monitoring, reporting, and recordkeeping obligations. MSHA published a request for information regarding engineering controls and best practices to lower miners’ exposure to respirable coal mine dust, and the comment period closed in July 2022. It is uncertain whether MSHA will present additional proposed rules, or revisions to the final rule, following the closing of the comment period.
MSHA has also published, and may continue to publish, various proposed and final rules or requests for information, which may result in additional rulemakings. For example, in June 2016, MSHA published a request for information on Exposure of Underground Miners to Diesel Exhaust. Following a comment period that closed in November 2016, MSHA received requests for MSHA and the National Institute for Occupational Safety and Health to hold a Diesel Exhaust Partnership to address the issues covered by MSHA’s request for information. The comment period for the request for information closed in September 2020.
In August 2019, MSHA published a request for information regarding exposure to respirable crystalline silica, most commonly found in the mining environment through quartz. The request solicited information regarding best practices to protect miners’ health from exposure to quartz, including examination of a new reduced permissible exposure limit, potential new or developing protective technologies, and/or technical and educational assistance. The comment period for the request for information closed in October 2019.
On December 10, 2024, MSHA published a final rule to revise Testing, Evaluation, and Approval of Electric Motor-Driven Mine Equipment and Accessories within underground mining environments.
On December 20, 2023, MSHA published a final rule requiring that all mine operators develop and implement a written safety program for mobile and powered haulage equipment at surface mines and surface areas of underground mines (Safety Program for Surface Mobile Equipment).
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It is uncertain whether MSHA will engage in further rulemaking regarding the above issues or any of the other various proposed rules or requests for information or whether any such rules would have material impacts on our operations or our costs of operation.
Subsequent to the passage of the MINER Act, Illinois, Kentucky, Pennsylvania, and West Virginia have enacted legislation addressing issues such as mine safety and accident reporting, increased civil and criminal penalties, and increased inspections and oversight. Additionally, state administrative agencies can promulgate administrative rules and regulations affecting our operations. Other states may pass similar legislation or administrative regulations in the future.
Some of the costs of complying with existing regulations and implementing new safety and health regulations may be passed on to our customers. Although we have not quantified the full impact, implementing and complying with these new federal and state safety laws and regulations have had, and are expected to continue to have, an adverse impact on our results of operations and financial position.
Black Lung Benefits Act
The Black Lung Benefits Act of 1977 and the Black Lung Benefits Reform Act of 1977, as amended in 1981 (“BLBA”), requires businesses that conduct current mining operations to make payments of black lung benefits to current and former coal miners with black lung disease, to some survivors of a miner who dies from this disease, and to a trust fund for the payment of benefits and medical expenses where no responsible coal mine operator has been identified for claims. As of January 1, 2022, the trust fund was funded by an excise tax on production of up to $0.50 per ton for underground-mined coal and up to $0.25 per ton for surface-mined coal, but not to exceed 2% of the applicable sales price. The Inflation Reduction Act of 2022 raised the excise tax, effective October 1, 2022, up to $1.10 per ton of coal from underground mines and up to $0.55 per ton of coal from surface mines, neither amount to exceed 4.4% of the gross sales price.
Workers’ Compensation and Black Lung
We provide income replacement and medical treatment for work-related traumatic injury claims as required by applicable state laws. Workers’ compensation laws also compensate survivors of workers who suffer employment-related deaths. We generally self-insure this potential expense using our actuarial estimates of the cost of present and future claims. In addition, coal mining companies are subject to federal legislation and various state statutes for the payment of medical and disability benefits to eligible recipients related to coal workers’ pneumoconiosis or black lung. We also provide for these claims through self-insurance programs. Our actuarial calculations are based on numerous assumptions, including disability incidence, medical costs, mortality, death benefits, dependents, and discount rates.
The revised BLBA regulations took effect in January 2001, relaxing the stringent award criteria established under previous regulations and thus potentially allowing new federal claims to be awarded and allowing previously denied claimants to re-file under the revised criteria. These regulations may also increase black lung-related medical costs by broadening the scope of conditions for which medical costs are reimbursable and increase legal costs by shifting more of the burden of proof to the employer.
The Patient Protection and Affordable Care Act enacted in 2010 includes significant changes to the federal black lung program retroactive to 2005, including an automatic survivor benefit paid upon the death of a miner with an awarded black lung claim and establishes a rebuttable presumption with regard to pneumoconiosis among miners with 15 or more years of coal mine employment that are totally disabled by a respiratory condition. These changes could have a material impact on our costs expended in association with the federal black lung program.
Surface Mining Control and Reclamation Act
The Federal Surface Mining Control and Reclamation Act of 1977 (“SMCRA”) and similar state statutes establish operational, reclamation, and closure standards for all aspects of surface mining as well as many aspects of underground mining. Currently, 100% of our production involves underground room and pillar mining (no surface subsidence). We do not engage in either mountain top removal or long-wall mining. SMCRA nevertheless requires that comprehensive
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environmental protection and reclamation standards be met during the course of and upon completion of our mining activities.
SMCRA and similar state statutes require, among other things, that surface disturbance be restored in accordance with specified standards and approved reclamation plans. SMCRA requires us to restore affected surface areas to approximate the original contours as contemporaneously as practicable with the completion of surface mining operations. Federal law and some states impose on mine operators the responsibility for replacing certain water supplies damaged by mining operations and repairing or compensating for damage to certain structures occurring on the surface as a result of mine subsidence, a consequence of longwall mining and possibly other mining operations. We believe we are in compliance in all material respects with applicable regulations relating to reclamation.
In addition, the Abandoned Mine Lands Program, which is part of SMCRA, imposes a reclamation fee on all current mining operations, the proceeds of which are used to restore mines closed before 1977. The fee expired on September 30, 2021, and was reauthorized through September 30, 2034, under the Infrastructure Investment and Jobs Act which was signed on November 15, 2021. The fee, as reauthorized, for surface-mined and underground-mined coal is $0.224 per ton and $0.096 per ton, respectively, through September 30, 2034. We have accrued the estimated costs of reclamation and mine closing, including the cost of treating mine water discharge when necessary. In addition, states from time to time have increased and may continue to increase their fees and taxes to fund reclamation or orphaned mine sites and acid mine drainage control on a statewide basis.
Under SMCRA, responsibility for unabated violations, unpaid civil penalties and unpaid reclamation fees of independent contract mine operators and other third parties can be imputed to other companies that are deemed, according to the regulations, to have “owned” or “controlled” the third-party violator. Sanctions against the “owner” or “controller” are quite severe and can include being blocked from receiving new permits and having any permits revoked that were issued after the time of the violations or after the time civil penalties or reclamation fees became due. We are not aware of any currently pending or asserted claims against us relating to the “ownership” or “control” theories discussed above. However, we cannot assure you that such claims will not be asserted in the future.
Coal Combustion Residuals
In April 2015, the United States Environmental Protection Agency (“EPA”) finalized rules on coal combustion residuals (“CCRs”). The rule established nationally applicable minimum criteria for the disposal of CCRs in new and currently operating landfills and surface impoundments, including location restrictions, design and operating criteria, groundwater monitoring, corrective action and closure requirements, and post-closure care. CCRs are generated at Merom Station and the facility is subject to the CCR rule. The EPA has indicated that it will implement a phased approach to amending the CCR Rule, which is ongoing. The CCR rule, current or proposed amendments to the federal CCR rule or state CCR regulations, the results of groundwater monitoring data, or the outcome of CCR-related litigation could have a material impact on our business, financial condition and results of operations.
Bonding Requirements
Federal and state laws require bonds to secure our obligations to reclaim lands used for mining, for closure and post-closure landfill care, and to satisfy other miscellaneous obligations. These bonds are typically renewable on a yearly basis. It has become increasingly difficult for our competitors and us to secure new surety bonds without posting collateral, and in some cases, it is unclear what level of collateral will be required. In addition, surety bond costs have increased while the market terms of surety bonds have generally become less favorable to us. It is possible that surety bond issuers may refuse to renew bonds or may demand additional collateral upon those renewals. Our failure to maintain or inability to acquire surety bonds that are required by federal and state laws would have a material adverse effect on our ability to produce coal and conduct electric power generating operations, which could affect our profitability and cash flow.
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Air Emissions
The Clean Air Act (“CAA”) and similar state and local laws and regulations regulate emissions into the air and affect coal mining and electric power generation operations. The CAA directly impacts our coal mining and processing and electric power generation operations by imposing permitting requirements and, in some cases, requirements to install certain emissions control equipment, achieve certain emissions standards, obtain emissions allowances, or implement certain work practices on sources that emit various air pollutants. The CAA also indirectly affects coal mining operations by extensively regulating the air emissions of coal-fired electric power generating plants and other coal-burning facilities. There have been a series of federal rulemakings focused on emissions from coal-fired electric generating facilities. Installation of additional emissions control technology and any additional measures required under applicable federal and state laws and regulations related to air emissions will make it more costly to operate coal-fired power plants and possibly other facilities that consume coal and, depending on the requirements of individual state implementation plans (“SIPs”), could make fossil fuels a less attractive fuel alternative in the planning and building of power plants in the future. A significant reduction in fossil fuels’ share of power generating capacity could have a material adverse effect on our business, financial condition, and results of operations.
In addition to the greenhouse gas (“GHG”) issues discussed below, the air emissions programs that may affect our operations, directly or indirectly, include, but are not limited to, the following:
● The EPA’s Acid Rain Program, provided in Title IV of the CAA, regulates emissions of sulfur dioxide from electric power generating facilities. Sulfur dioxide is a by-product of coal combustion. Affected facilities purchase or are otherwise allocated sulfur dioxide emissions allowances, which must be surrendered annually in an amount equal to a facility’s sulfur dioxide emissions in that year. Affected facilities may sell or trade excess allowances to other facilities that require additional allowances to offset their sulfur dioxide emissions. In addition to purchasing or trading for additional sulfur dioxide allowances, affected power facilities can satisfy the requirements of the EPA’s Acid Rain Program by switching to lower-sulfur fuels, installing pollution control devices such as flue gas desulfurization systems, or “scrubbers,” or by reducing electric generating levels.
● The Cross-State Air Pollution Rule (“CSAPR”) addresses the “good neighbor” provision in the Clean Air Act, which prohibits sources within each state from emitting any air pollutant in an amount which will contribute significantly to any other state’s nonattainment of, or interference with maintenance of, any National Ambient Air Quality Standards (“NAAQS”). CSAPR requires power plants in certain states to reduce emission levels of sulfur dioxide and nitrogen oxide pursuant to a cap-and-trade program similar to the Acid Rain Program. In October 2016, the EPA published a final rule to update the CSAPR to address the 2008 ozone NAAQS ("CSAPR Update Rule"). Following legal challenges related to the CSAPR Update Rule, on April 30, 2021, the EPA issued the Revised CSAPR Update Rule. The Revised CSAPR Update Rule required affected electric generating units ("EGUs") within certain states (including Indiana) to participate in a new trading program. On June 5, 2023, the EPA published a final Federal Implementation Plan to address air quality impacts with respect to the 2015 Ozone NAAQS called the “Good Neighbor Plan.” However, on June 27, 2024, the United States Supreme Court granted emergency applications seeking a stay of the Good Neighbor Plan pending judicial review. In response, on November 6, 2024, EPA issued an interim final rule, which effectively reinstated the Revised CSAPR Update Rule during the stay. While our CSAPR compliance costs to date have not been material, the future availability of and cost to purchase allowances to meet the emission reduction requirements is uncertain at this time, but it could be material.
● In February 2012, the EPA adopted the Mercury and Air Toxic Standards (“MATS”), which regulates the emission of mercury and other metals, fine particulates, and acid gases such as hydrogen chloride from coal and oil-fired power plants. In March 2013, the EPA finalized a reconsideration of the MATS rule as it pertains to new power plants, principally adjusting emissions limits to levels attainable by existing control technologies. In subsequent litigation, the U.S. Supreme Court struck down the MATS rule based on the EPA’s failure to take costs into consideration. The U.S. Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit Court”) allowed the current rule to stay in place until the EPA issued a new finding. In April 2016, the EPA issued a final supplemental finding upholding the rule and concluding that a cost analysis supports the MATS rule. In April 2017, the D.C. Circuit Court of Appeals granted the EPA’s request to cancel oral arguments and ordered the case held in abeyance for an EPA review of the supplemental finding. In December 2018, the EPA
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issued a proposed Supplemental Cost Finding, as well as the CAA required “risk and technology review.” In May 2020, EPA issued a final rule that reverses the Agency’s prior determination from 2000 and 2016 that it was “appropriate and necessary” to regulate hazardous air pollutants (“HAP”) from coal-fueled Electric Generating Units (“EGUs”) under the MATS rule. However, in March 2023, EPA published a final rule revoking the May 2020 finding, and in May 2024, EPA issued a final rule amending MATS and increasing the stringency of certain requirements. The MATS rule has forced electric power generators to make capital investments to retrofit power plants and could lead to additional premature retirements of older coal-fired generating units. The announced and possible additional retirements are likely to reduce the demand for coal. Apart from MATS, several states have enacted or proposed regulations requiring reductions in mercury emissions from coal-fired power plants, and federal legislation to reduce mercury emissions from power plants has been proposed. Regulation of mercury emissions by the EPA, states, or Congress may decrease the future demand for coal. We continue to evaluate the possible scenarios associated with CSAPR and MATS and the effects they may have on our business and our results of operations, financial condition or cash flows.
● The EPA is required by the CAA to periodically re-evaluate the available health effects information to determine whether the National Ambient Air Quality Standards (“NAAQS”) should be revised. Pursuant to this process, the EPA has adopted more stringent NAAQS for fine particulate matter (“PM”), ozone, nitrogen oxide, and sulfur dioxide. As a result, some states will be required to amend their existing SIPs to attain and maintain compliance with the new air quality standards and other states will be required to develop new SIPs for areas that were previously in “attainment” but do not attain the new standards. In addition, under the revised ozone NAAQS, significant additional emissions control expenditures may be required at coal-fired power plants. In March 2019, the EPA published a final rule that retained the current primary NAAQS for sulfur oxide. In December 2020, EPA published a final rule to retain the current NAAQS for both PM and ozone; however, various entities have filed litigation against one or both of these rulemakings, and the Biden Administration announced that it would reconsider and potentially revise the NAAQS. On February 7, 2024, the EPA issued a new final rule regarding the Reconsideration of the NAAQS for PM, and as part of that rule, EPA revised the level of the primary (health-based) annual PM2.5 standard from 12.0 to 9.0 micrograms per cubic meter. With respect to ozone, in August 2023, EPA announced that it is also conducting a new review of the ozone NAAQS. New standards may impose additional emissions control requirements on new and expanded coal-fired power plants and industrial boilers. Because coal mining operations and coal-fired electric generating facilities emit particulate matter and sulfur dioxide, our electric power generating operations and our mining operations and our customers could be affected when the new standards are implemented by the applicable states, and developments might indirectly reduce the demand for coal or electricity from coal-fired power plants.
● The EPA’s regional haze program is designed to protect and improve visibility at and around national parks, national wilderness areas, and international parks. Under the program, states are required to develop SIPs to improve visibility. Typically, these plans call for reductions in sulfur dioxide and nitrogen oxide emissions from coal-fired power plants. In prior cases, the EPA has decided to negate the SIPs and impose stringent requirements through Federal Implementation Plans (“FIPs”). The regional haze program, including particularly the EPA’s FIPs, and any future regulations may restrict the construction of new coal-fired power plants whose operation may impair visibility at and around federally protected areas and may require some existing coal-fired power plants to install additional control measures designed to limit haze-causing emissions. These requirements could limit the demand for coal in some locations. In September 2018, the EPA issued a memorandum that detailed plans to assist states as they develop their SIPs, which was followed by a supplemental memorandum in July 2021 for SIPs for the second implementation period.
● The EPA’s new source review (“NSR”) program under the CAA in certain circumstances requires existing coal-fired power plants, when modifications to those plants significantly increase emissions, to install more stringent air emissions control equipment. The Department of Justice, on behalf of the EPA, has filed lawsuits against a number of coal-fired electric generating facilities alleging violations of the NSR program. The EPA has alleged that certain modifications have been made to these facilities without first obtaining certain permits issued under the program. Several of these lawsuits have been settled, but others remain pending. In October 2020, the EPA finalized a rule to clarify the process for evaluating whether the NSR permitting program would apply to a proposed modification of a source of air emissions. The EPA has announced that it will review the NSR program. Depending on the ultimate resolution of the EPA’s litigation and review, demand for coal could be affected as well as the process by which EPA evaluates modifications to power plants that trigger NSR.
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GHG Emissions
Combustion of fossil fuels, such as the coal we produce and the coal that is used at Merom Station, results in the emission of GHGs, such as carbon dioxide and methane. Combustion of fuel for mining equipment used in coal production also emits GHGs.
The EPA has begun to regulate GHG emissions under the CAA based on the U.S. Supreme Court’s 2007 decision that the EPA has authority to regulate GHG emissions. Although the U.S. Supreme Court’s holding did not expressly involve the EPA’s authority to regulate GHG emissions from stationary sources, such as coal-fired power plants, the EPA has determined on its own that it has the authority to regulate GHG emissions from power plants and issued a final rule which found that GHG emissions, including carbon dioxide and methane, endanger both the public health and welfare.
Several rulemakings have been issued under the EPA’s New Source Performance Standards (“NSPS”) that constrain the GHG emissions of fossil-fuel-fired power plants. In August 2015, the EPA issued its final Clean Power Plan (“CPP”) rules that establish carbon pollution standards for power plants, called CO2 emission performance rates. Judicial challenges led the U.S. Supreme Court to grant a stay in February 2016 of the implementation of the CPP before the United States Court of Appeals for the District of Columbia (“Circuit Court”) even issued a decision. Then, in October 2017 the EPA proposed to repeal the CPP. The EPA subsequently proposed the Affordable Clean Energy (“ACE”) rule to replace the CPP with a rule that utilizes heat rate improvement measures as the “best system of emission reduction.” The ACE rule adopted new implementing regulations under the CAA to clarify the roles of the EPA and the states, including an extension of the deadline for state plans and EPA approvals; and the rule revises the NSR permitting program to provide EGUs the opportunity to make efficiency improvements without triggering NSR permit requirements. In June 2019, the EPA published the final repeal of the CPP and promulgation of the ACE rule. On January 19, 2021, the Circuit Court struck down the ACE rule and found the EPA’s “repeal of the CPP rested critically on a mistaken reading of the CAA.” On June 30, 2022, the Supreme Court of the United States reversed and remanded the Circuit Court’s decision in West Virginia v. EPA and found that, in the promulgation of the CPP, the EPA had acted outside the bounds of the legal authority granted to the agency by Congress.
On May 9, 2024, the EPA published a final rule that, among other things, repealed the ACE rule and also established emissions guidelines for GHG emissions for existing coal-fired and new or substantially modified gas-fired power plants. The rule divides coal-fired power plants into three categories. Those that will cease operation by 2032 are exempt from the rule. Those operating between 2032 and 2039 will be required to achieve emissions reductions equivalent to co-firing 40 percent by volume natural gas. Those intending to operate after 2039 will be required to achieve emissions reductions equivalent to 90 percent capture of CO2 through carbon capture and sequestration (“CCS”). While the rule has been challenged in court, the US Supreme Court declined to stay the rule while those challenges proceed. Additionally, the new Trump Administration has indicated its intention to revise the rule. The rule could potentially have a material adverse effect on our business, financial condition, and results of operations.
Future, additional regulation of GHG emissions in the U.S. could occur pursuant to future U.S. treaty commitments, new domestic legislation or regulation by the EPA. Congress has not currently adopted explicit legislation to restrict carbon dioxide emissions from existing power plants and has not otherwise expanded the legal authority of the EPA following West Virginia v. EPA , including as it relates to its authority to regulate carbon dioxide emissions from existing and modified power plants. However, we cannot predict whether such legislation will be signed into law in the future. Internationally, the Paris Agreement requires member states to submit non-binding, individually-determined emissions reduction targets. These commitments could further reduce demand and prices for fossil fuels. Although the U.S. had withdrawn from the Paris Agreement, President Biden recommitted the U.S. in February 2021 and, in April 2021, the Biden Administration announced a new, more rigorous nationally determined emissions reduction level of 50- 52% reduction from 2005 levels in economy-wide net GHG emissions by 2030. However, the new Trump administration has recently announced its intention to withdraw from the Paris Agreement, so these targets from the Biden Administration may change.
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Since the 2021 Biden Administration targets were announced, the Parties of the UN Framework Convention on Climate Change have met on several occasions, including at the 28th Conference to the Parties on the UN Framework Convention on Climate Change (“COP28”). At the COP28, the Parties agreed to non-binding language calling on countries to transition away from fossil fuels in energy systems to achieve net zero emissions by 2050. The impact of these actions remains unclear at this time. Moreover, many states, regions, and governmental bodies have adopted GHG initiatives and have or are considering the imposition of fees or taxes based on the emission of GHGs by certain facilities, including coal-fired electric generating facilities. Others have announced their intent to increase the use of renewable energy sources, displacing coal and other fossil fuels. Depending on the particular regulatory program that may be enacted, at either the federal or state level, the demand for coal and electricity from coal-fired power plants, such as Merom Station, could be negatively impacted, which would have an adverse effect on our operations.
There have been numerous protests and challenges to the permitting of new fossil fuel infrastructure, including coal-fired power plants and pipelines, by environmental organizations and state regulators for concerns related to GHG emissions. For instance, various state regulatory authorities have rejected the construction of new coal-fueled power plants based on the uncertainty surrounding the potential costs associated with GHG emissions from these plants under future laws limiting the emissions of carbon dioxide. In addition, several permits issued to new coal-fueled power plants without limits on GHG emissions have been appealed to the EPA’s Environmental Appeals Board. In addition, over thirty states have currently adopted “renewable energy standards” or “renewable portfolio standards,” which encourage or require electric utilities to obtain a certain percentage of their electric generation portfolio from renewable resources by a certain date. Several states have announced their intent to have renewable energy comprise 100% of their electric generation portfolio. Other states may adopt similar requirements, and federal legislation is a possibility in this area. To the extent these requirements affect our current and prospective customers, they may reduce the demand for fossil fuel energy, and may affect long-term demand for our coal. Finally, while the U.S. Supreme Court has held that federal common law provides no basis for public nuisance claims against utilities due to their carbon dioxide emissions, the Court did not decide whether similar claims can be brought under state common law. As a result, despite this favorable ruling, tort-type liabilities remain a concern.
In addition, environmental advocacy groups have filed a variety of judicial challenges claiming that the environmental analyses conducted by federal agencies before granting permits and other approvals necessary for certain coal activities do not satisfy the requirements of the National Environmental Policy Act (“NEPA”). These groups assert that the environmental analyses in question do not adequately consider the climate change impacts of these particular projects. In April 2022, the White House Council on Environmental Quality (“CEQ”) issued a final rule revoking some of the modifications made to the NEPA regulations under the previous administration and reincorporated the consideration of direct, indirect and cumulative effects of major federal actions, including GHG emissions. And, in January 2023, the CEQ released guidance, effective immediately, to assist federal agencies in assessing the GHG emissions and climate change effects of their proposed actions under NEPA. However, in November 2024, the U.S. Court of Appeals for the D.C. Circuit held that CEQ has no authority to issue regulations implementing NEPA and that CEQ’s NEPA regulations are, therefore, invalid and of no effect.
Many states and regions have adopted GHG initiatives, and certain governmental bodies have or are considering the imposition of fees or taxes based on the emission of GHG by certain facilities, including coal-fired electric power generating facilities. For example, in 2005, ten Northeastern states entered into the Regional Greenhouse Gas Initiative agreement (“RGGI”), calling for the implementation of a cap and trade program aimed at reducing carbon dioxide emissions from power plants in the participating states. The members of RGGI have established in statutes and/or regulations a carbon dioxide trading program. Auctions for carbon dioxide allowances under the program began in September 2008. Since its inception, several additional states and Canadian provinces have joined RGGI as participants or observers, while Virginia has withdrawn from RGGI via executive order by its governor. Similar to RGGI, five western states launched the Western Regional Climate Initiative, although only California and certain Canadian provinces are currently active participants. We cannot predict what other regional greenhouse gas reduction initiatives may arise in the future.
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It is possible that future international, federal and state initiatives to control GHG emissions could result in increased costs associated with fossil fuel production and consumption, such as costs to install additional controls to reduce carbon dioxide emissions or costs to purchase emissions reduction credits to comply with future emissions trading programs. Such increased costs for fossil fuel consumption could result in some customers switching to alternative sources of fuel, or otherwise adversely affect our operations and demand for our products, which could have a material adverse effect on our business, financial condition, and results of operations. Finally, activists may try to hamper fossil fuel companies by other means, including pressuring financing and other institutions into restricting access to capital, bonding and insurance, as well as pursuing tort litigation for various alleged climate-related impacts.
Water Discharge
The Federal Clean Water Act (“CWA”) and similar state and local laws and regulations regulate discharges into certain waters, primarily through permitting. Section 402 of the CWA governs discharges of pollutants into waters of the United States, primarily through National Pollutant Discharge Elimination System (“NPDES”) permits. Hallador’s Merom Generating Station is subject to an NPDES permit for its wastewater and stormwater discharges.
Section 404 of the CWA imposes permitting and mitigation requirements associated with the dredging and filling of certain wetlands and streams. The CWA and equivalent state legislation, where such equivalent state legislation exists, affect electric power generation operations and coal mining operations that impact such wetlands and streams. We believe we have obtained all necessary permits required under CWA Section 404 as it has traditionally been interpreted by the responsible agencies. However, mitigation requirements under existing and possible future “fill” permits may vary considerably. For that reason, the setting of post-mine asset retirement obligation accruals for such mitigation projects is difficult to ascertain with certainty and may increase in the future. The definition of “waters of the United States,” which governs federal jurisdiction under the Clean Water Act, has been subject to many shifting regulations and litigation in recent years. However, in May 2023, the U.S. Supreme Court issued its decision in Sackett v. EPA , which significantly limited the scope of federal jurisdiction over wetlands under the Clean Water Act. In response to the Supreme Court’s decision, in August 2023, EPA issued its final rule amending the definition of “waters of the United States” to conform its regulations to the Supreme Court’s decision in Sackett . While the Sackett decision and the subsequent rule issued by EPA have reduced the scope of federal regulation at this time, it is possible that more stringent permitting requirements may be imposed in the future, and we are not able to accurately predict the impact, if any, of such permitting requirements.
In order for us to conduct certain activities, we may need to obtain a permit for the discharge of fill material from the U.S. Army Corps of Engineers (“Corps of Engineers”) and/or a discharge permit from the state regulatory authority under the state counterpart to the CWA. Our coal mining operations typically require Section 404 permits to authorize activities such as the creation of slurry ponds and stream impoundments. The CWA authorizes the EPA to review Section 404 permits issued by the Corps of Engineers, and in 2009, the EPA began reviewing Section 404 permits issued by the Corps of Engineers for coal mining in Appalachia. Currently, significant uncertainty exists regarding the obtaining of permits under the CWA for coal mining operations in Appalachia due to various initiatives launched by the EPA regarding these permits.
The EPA also has statutory “veto” power over a Section 404 permit if the EPA determines, after notice and an opportunity for a public hearing, that the permit will have an “unacceptable adverse effect.” In January 2011, the EPA exercised its veto power to withdraw or restrict the use of a previously issued permit for Spruce No. 1 Surface Mine in West Virginia, which is one of the largest surface mining operations ever authorized in Appalachia. This action was the first time that such power was exercised with regard to a previously permitted coal mining project which veto was subsequently upheld by the D.C. Circuit Court in 2013. Any future use of the EPA’s Section 404 “veto” power could create uncertainty with regard to our continued use of current permits, as well as impose additional time and cost burdens on future operations, potentially adversely affecting our coal revenues. In addition, the EPA initiated a preemptive veto prior to the filing of any actual permit application for a copper and gold mine based on a fictitious mine scenario. The implications of this decision could allow the EPA to bypass the state permitting process and engage in watershed and land use planning.
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Total Maximum Daily Load (“TMDL”) regulations under the CWA establish a process to calculate the maximum amount of a pollutant that an impaired waterbody can receive and still meet state water quality standards and to allocate pollutant loads among the point and non-point pollutant sources discharging into that water body. Likewise, when water quality in a receiving stream is better than required, states are required to conduct an antidegradation review before approving discharge permits. The adoption of new TMDL-related allocations or any changes to antidegradation policies for streams near our coal mines or electric power generating operations could require more costly water treatment and could adversely affect our coal production or electric power generation operations.
On November 3, 2015, the EPA published the final Effluent Limitations Guidelines and Standards (“ELG”) rule, revising the regulations for the Steam Electric Power Generating category, which became effective on January 4, 2016. The rule sets the first federal limits on the levels of toxic metals in wastewater that can be discharged from power plants, based on technology improvements in the steam electric power industry over the last three decades. The combined effect of the CCR rule and ELG regulations has forced power generating companies to close existing ash ponds and will likely force the closure of certain older existing coal-burning power plants that cannot comply with the new standards. In November 2019, the EPA proposed revisions to the 2015 ELG rule and announced proposed changes to regulations for the disposal of coal ash in order to reduce compliance costs. In October 2020, the EPA published a final rule. In August 2021, the EPA initiated supplemental rulemaking indicating that it intended to strengthen certain discharge limits. The EPA issued a final rule for in May 2024, which established more stringent requirements for flue gas desulfurization (“FGD”) wastewater, bottom ash transport water, and combustion residual leachate, among other measures. The new rule also established early shutdown alternatives for plants permanently ceasing coal combustion by certain target dates. These regulations may impact the market for our coal products and our electric power generating operations.
On April 23, 2020, the U.S. Supreme Court issued a decision in the Hawaii Wildlife Fund v. County of Maui case related to whether a CWA permit is required when pollutants originate from a point source but are conveyed to navigable waters through a nonpoint source, such as groundwater. The Court held that discharges to groundwater require a permit if the addition of the pollutants through groundwater is the functional equivalent of a direct discharge from the point source into navigable waters. A number of legal cases relevant to determination of “functional equivalent” are ongoing in various jurisdictions. It is too early to determine whether the Supreme Court decision or the result of litigation to “functional equivalent” may have a material impact on our business, financial condition, or results of operations.
In June 2016, the EPA published the final national chronic aquatic life criterion for the pollutant selenium in fresh water. NPDES permits may be updated to include selenium water quality-based effluent limits based on a site-specific evaluation process, which includes determining if there is a reasonable potential to exceed the revised final selenium water quality standards for the specific receiving water body utilizing actual and/or project discharge information for the generating facilities. As a result, it is not yet possible to predict the total impacts of this final rule at this time, including any challenges to such final rule and the outcome of any such challenges.
The Merom Generating Station is subject to requirements under CWA Section 316(a) for thermal discharges and Section 316(b) for cooling water intake structures. Section 316(a) standards allow thermal dischargers to have less stringent alternate thermal limits if they can demonstrate that the current effluent limitations, based on water quality standards, are more stringent than necessary to protect the aquatic organisms in the receiving water body. Merom Station is currently subject to a 316(a) variance and alternative thermal effluent limits. If Merom Station’s 316(a) variance were revoked in the future, additional capital expenditures may be required that could be material.
Section 316(b) standards require affected facilities to choose among seven best technology available (“BTA”) options to reduce fish impingement. In addition, certain facilities must conduct studies to assist permitting authorities to determine whether and what site-specific controls, if any, would be required to reduce entrainment of aquatic organisms. It is possible that this process, which includes permitting and public input, could result in the need to install closed-cycle cooling systems (closed-cycle cooling towers), or other technology, although the Indiana Department of Environmental Management has previously determined that the systems in place currently at Merom Station meet the BTA requirements. If additional capital expenditures became necessary in the future, they could be material.
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Hazardous Substances and Wastes
The Federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), otherwise known as the “Superfund” law, and analogous state laws, impose liability, without regard to fault or the legality of the original conduct on certain classes of persons that are considered to have contributed to the release of a “hazardous substance” into the environment. These persons include the owner or operator of the site where the release occurred and companies that disposed or arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for the release of hazardous substances may be subject to joint and several liability under CERCLA for the costs of cleaning up releases of hazardous substances and natural resource damages. Some products used in coal mining operations and electric power generating operations generate waste containing hazardous substances. We are currently unaware of any material liability under CERCLA or analogous state laws associated with the release or disposal of hazardous substances from our past or present mine sites or electric power generating operations.
The Federal Resource Conservation and Recovery Act (“RCRA”) and analogous state laws impose requirements for the generation, transportation, treatment, storage, disposal, and cleanup of hazardous and non-hazardous wastes. Many mining wastes as well as CCR generated from our electric power generating operations are excluded from the regulatory definition of hazardous wastes, and coal mining operations covered by SMCRA permits are by statute exempted from RCRA permitting. RCRA also allows the EPA to require corrective action at sites where there is a release of hazardous substances. In addition, each state has its own laws regarding the proper management and disposal of waste material. While these laws impose ongoing compliance obligations, such costs are not believed to have a material impact on our operations.
Coal Combustion Residuals
RCRA impacts the coal industry and electric power generation industry in particular because it regulates the management and disposal of certain coal combustion residuals (“CCR”). On April 17, 2015, the EPA finalized regulations under RCRA for the management and disposal of CCR. Under the finalized regulations, CCR is regulated as “non-hazardous” waste and avoids the stricter, more costly, regulations under RCRA’s hazardous waste rules. While classification of CCR as a hazardous waste would have led to more stringent restrictions and higher costs, this regulation may still increase our customers’ operating costs and potentially reduce their ability to purchase coal as well as increase the operating cost of our electric power generation operations. The CCR rule was subject to legal challenge and ultimately remanded to the EPA. On August 28, 2020, the EPA published a final revised rule mandating closure of unlined impoundments, with deadlines to initiate closure between 2021 and 2028, depending on site specific circumstances. Certain provisions of the revised CCR rule were vacated by the D.C. Circuit Court in 2018. Meanwhile, on January 25, 2022, the EPA published determinations for 9 of 57 CCR facilities who sought approval to continue disposal of CCR and non-CCR waste streams until 2023, as opposed to the initial 2021 deadline for unlined impoundments prescribed by the current rule. While the EPA issued one conditional approval, the EPA is requiring the remaining facilities to cease receipt of waste within 135 days of completion of public comment or around July 2022. And, in January 2023, the EPA issued six proposed determinations to deny facilities’ requests to continue disposal into unlined surface impoundments. The current determinations, future determinations of the same nature, or similar actions in expected future rulemakings could lead to accelerated, abrupt, or unplanned suspension of coal-fired boilers. Further, in May 2024, EPA finalized changed to the CCR regulations for inactive surface impoundments at inactive electric utilities, referred to as “legacy CCR surface impoundments,” and also established certain requirements for a new subcategory of CCR areas called “CCR management units,” among other actions. The combined effect of the CCR rules and ELG regulations (discussed above) has compelled power generating companies to close existing ash ponds and may force the closure of certain existing coal burning power plants that cannot comply with the new standards. Such retirements may adversely affect the demand for our coal, and the CCR rule requirements and any revisions affect our CCR landfill at Merom Generating Station.
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Endangered Species Act
The federal Endangered Species Act (“ESA”) and counterpart state legislation protect species threatened with possible extinction. The U.S. Fish and Wildlife Service (the “USFWS”) works closely with the OSM and state regulatory agencies to ensure that species subject to the ESA are protected from potential impacts from mining-related activities. In October 2021, the Biden Administration proposed the rollback of new rules promulgated under the Trump Administration and, in June 2022, the USFWS and the National Marine Fisheries Service published a final rule rescinding the 2020 regulatory definition of “habitat.”
If the USFWS were to designate species indigenous to the areas in which we operate as threatened or endangered, or to re-designate a species from threatened to endangered, we could be subject to additional regulatory and permitting requirements, which in turn could increase operating costs or adversely affect our revenues.
Other Environmental, Health and Safety Regulation
In addition to the laws and regulations described above, we are subject to regulations regarding underground and above ground storage tanks in which we may store petroleum or other substances. Some monitoring equipment that we use is subject to licensing under the Federal Atomic Energy Act. Water supply wells located on our properties are subject to federal, state, and local regulations. In addition, our use of explosives is subject to the Federal Safe Explosives Act. We are also required to comply with the Federal Safe Drinking Water Act, the Toxic Substance Control Act, and the Emergency Planning and Community Right-to-Know Act. The costs of compliance with these regulations should not have a material adverse effect on our business, financial condition, or results of operations.
Climate Change Issues
Physical Climate Risks . Increased frequency of severe and extreme weather events associated with climate change could materially impact our facilities, energy sales, and results of operations. We are unable to predict these events. However, we perform ongoing assessments of physical risk, including physical climate risk, to our business. More extreme and volatile temperatures, increased storm intensity and flooding, and more volatile precipitation leading to changes in lake and river levels are among the weather events that are most likely to impact our business.
Transition Climate Risks. Future legislative and regulatory programs, at both the federal and state levels, could significantly limit allowed GHG emissions or impose a cost or tax on GHG emissions. Revised or additional future GHG legislation and/or regulation related to the generation of electricity or the extraction, production, distribution, transmission, storage and end use of natural gas could materially impact our gas supply, financial position, financial results and cash flows.
Regarding federal policies, we continue to monitor the implementation of any final and proposed climate change-related legislation and regulations, including the Infrastructure Investment and Jobs Act, signed into law in November 2021; the development of the Enhancement and Standardization of Climate-Related Disclosures, proposed by the SEC in March 2022; the Inflation Reduction Act (“IRA”), signed into law in August 2022; and the EPA’s methane regulations for the oil and natural gas industry, but we cannot predict their impact on our business at this time. We have identified potential opportunities associated with the Infrastructure Investment and Jobs Act and the IRA and are evaluating how they may align with our strategy going forward. The energy-related provisions of the Infrastructure Investment and Jobs Act include new federal funding for power grid infrastructure and resiliency investments, new and existing energy efficiency and weatherization programs, electric vehicle infrastructure for public chargers and additional Low Income Home Energy Assistance Program funding over the next five years. The IRA contains climate and energy provisions, including funding to decarbonize the electric sector.
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Suppliers
The main types of goods we purchase for our mining operations are mining equipment and replacement parts, steel-related (including roof control) products, belting products, lubricants, electricity, fuel, and tires. For our electric operations, we purchase coal, limestone, fuel oil, anhydrous ammonia, and other chemicals and items necessary to operate Merom Station. Although we have many long, well-established relationships with our key suppliers, we do not believe that we are dependent on any of our individual suppliers other than for purchases of electricity. The supplier base providing mining materials has been relatively consistent in recent years. Purchases of certain underground mining equipment are concentrated with one principal supplier; however, supplier competition continues to develop.
Illinois Basin (ILB)
The coal industry underwent a significant transformation in the early 1990s, as greater environmental accountability was established in the electric utility industry. Through the U.S. CAA, acceptable baseline levels were established for the release of sulfur dioxide in power plant emissions. In order to comply with the new law, most utilities switched fuel consumption to low-sulfur coal, thereby stripping the ILB of over 50 million tons of annual coal demand. This strategy continued until mid-2000 when a shortage of low-sulfur coal drove up prices. This price increase combined with the assurance from the U.S. government that the utility industry would be able to recoup their costs to install scrubbers caused utilities to begin investing in scrubbers on a large scale. With scrubbers, the ILB re-opened as a significant fuel source for utilities and has enabled them to burn lower-cost high sulfur coal.
The ILB consists of coal mining operations covering more than 50,000 square miles in Illinois, Indiana, and western Kentucky. The ILB is centrally located between four of the largest regions that consume coal as fuel for electricity generation (East North Central, West South Central, West North Central, and East South Central). The region also has access to sufficient rail and water transportation routes that service coal-fired power plants in these regions as well as other significant coal consuming regions of the South Atlantic and Middle Atlantic.
U.S. Coal Industry
The major coal production basins in the U.S. include ILB, Central Appalachia (“CAPP”), Northern Appalachia (“NAPP”), Powder River Basin (“PRB”), and the Western Bituminous region (“WB”). CAPP includes eastern Kentucky, Tennessee, Virginia, and southern West Virginia. NAPP includes Maryland, Ohio, Pennsylvania, and northern West Virginia. The PRB is located in northeastern Wyoming and southeastern Montana. The WB includes western Colorado, eastern Utah, and southern Wyoming. Hallador Energy Company (“Hallador”), through its wholly-owned subsidiary Sunrise Coal, LLC (“Sunrise Coal”), mines coal exclusively in the ILB.
Coal type varies by basin. Heat value and sulfur content are important quality characteristics and determine the end-use for each coal type.
Coal in the U.S. is mined through surface and underground mining methods. The primary underground mining techniques are longwall mining and continuous (room-and-pillar) mining. The geological conditions dictate which technique to use. Our mines utilize the continuous mining technique. In continuous mining, rooms are cut into the coal bed leaving a series of pillars, or columns of coal, to help support the mine roof and control the flow of air. Continuous mining equipment cuts the coal from the mining face. Generally, openings are driven 20’ wide, and the pillars are rectangular in shape measuring 40’x 40’. As mining advances, a grid-like pattern of entries and pillars is formed. Roof bolts are used to secure the roof of the mine. Battery cars move the coal to the conveyor belt for transport to the surface. The pillars can constitute up to 50% of the total coal in a seam.
The U.S. coal industry is highly competitive, with numerous producers selling into all markets that use coal. We compete against large producers such as Peabody Energy Corporation (NYSE: BTU), Alliance Resource Partners (Nasdaq: ARLP), and other private producers.
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Human Capital
As of December 31, 2024, Hallador and its subsidiaries employed 615 full-time employees and temporary miners, 582 of those employees and temporary miners are directly involved in the coal mining or coal washing process. Our coal workforce is entirely union-free. At our power plant, our operator, Consolidated Asset Management Services (CAMS) employs represented workers. While these workers are not Hallador Power employees, labor disruptions within the CAMS workforce could disrupt our operations at the plant. To attract and retain top talent, we provide competitive wages, an annual bonus for all employees, excellent benefits, an employee health clinic and a culture that is committed to health and safety at all levels.
Employee health and safety is a top priority at Hallador’s wholly owned subsidiary, Sunrise Coal. With a robust safety department and safety standards that exceed mandated guidelines, we make safety the foundation of everything we do. While every precaution is taken to prevent mine emergencies, Sunrise Coal has its own private mine rescue team. This team is trained and ready to manage emergency situations at a Sunrise Coal facility, but also ready and available to assist other mine rescue teams. We continuously monitor safety data such as injury severity, violations per inspection day, and significant and substantial citations and compare to the national averages noting that in 2021 we were at or below the national averages in all three categories. For more information about citations or orders for violations of standards under the FMSHA, as amended by the Miner Act, please see our Exhibit 95 to this Annual Report on Form 10-K.
While other companies have moved to high deductible health plans, Hallador is committed to providing comprehensive affordable health insurance with low-cost deductibles and co-pays to take care of our employees and their families. We believe in decreasing the barriers to healthcare, so employees and their dependents do not have to delay care. Our employees and their families also have access to a private full-time health and wellness clinic, with free medications, no cost diagnostics, and a wellness coach.
Beyond investing in the safety and health of its employees, Hallador invests in educational opportunities for its employees. All continuing education requirements and training are completely paid for by the company and tuition reimbursement programs are available to every employee companywide.
Recent Regulatory Developments from the Presidential Transition
On January 20, 2025, Donald J. Trump was inaugurated as the 47 th President of the United States of America. Since President Trump’s inauguration, the new Administration has rescinded various Biden Administration Executive Orders and has issued new Executive Orders and taken other related executive actions, which may impact the market for our coal products or our electric power generating operations. These new Executive Orders reflect policy objectives such as promoting the development of domestic energy resources, expedited permitting for energy projects, potential withdrawal from international climate change agreements, and the potential reconsideration of US EPA’s 2009 endangerment finding for greenhouse gas emissions under the Clean Air Act, among other issues. Many of these policy objectives will require further rulemaking actions or other formal steps before they would become law. In addition, the new Administration has taken actions to reduce the number of federal employees and to eliminate certain federal agencies or reduce their authority. As a result, there is significant uncertainty regarding whether or how regulations and the agencies that administer and enforce these regulations may change as a result of the actions taken to date and possible future actions by the new Administration. Additionally, there may be litigation over such regulatory changes, and if public enforcement decreases as a result of such changes, private litigation over environmental matters may increase.
Other
We have no significant patents, trademarks, licenses, franchises, or concessions.
Our corporate office, as well as Sunrise Coal and Hallador Power’s corporate office, is located at 1183 East Canvasback Drive, Terre Haute, Indiana, 47802. All offices can be reached at 812.299.2800 . Terre Haute is approximately 70 miles west of Indianapolis.
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Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports are available, free of charge, on our website at www.halladorenergy.com under the “Investor Relations” section, as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC at www.sec.gov.