State officials are looking for independent consultants to evaluate Utah's proposed investment in a California export terminal — a plan that has sparked controversy in both states from critics who question the environmental impact of shipping coal and future demand for it.
The proposed loan is a new approach for the Permanent Community Impact Fund Board (CIB), which decides how to spend millions the state reaps every year from federal mineral royalties and leases. SB246 bypasses restrictions on CIB funding, allowing the board to create a new revolving loan program designed to help move rural Utah's natural resources to distant markets.
CIB's parent agency, Department of Workforce Services, has released a request for proposals from consultants who would perform due diligence on these new loans, according to Jonathan Hardy, director of housing and community development.
First up is the $53 million loan sought by four coal-producing counties that want to invest in a proposed deep-water terminal under development in Oakland.
"We want to do a thorough underwriting," CIB chairman Keith Heaton said Wednesday. "We want to make sure there is an independent entity looking into these things and has the expertise to do that."
The board's monthly meeting Wednesday was devoted almost entirely to implementing SB246, such as establishing the criteria projects must meet for loans, and advancing the export terminal investment.
"You have an exciting new program that this legislation created," Assistant Attorney General Susan Eisenman said. "The board should be thinking how and in what manner you will exercise your discretion. You should be thinking as an investor in this project, what do you want to see. This will tell the applicants what you want."
Other proposals that could seek access to the new fund are a transmission line, oil pipeline and rail line serving the Uinta Basin's oil patch and a 48-mile rail spur connecting Salina to the coal load-out on the Union Pacific line at Levan.
SB246 establishes the revolving loan fund for such "throughput infrastructure" projects, but it also allows CIB to forgive or restructure the loans under "extenuating circumstances."
"If you forgive the debt it is not a revolving fund. There is a conundrum there that we have to work out," Heaton said.
Heaton noted that no Utah county or municipality has ever defaulted on a CIB loan. But none has ever borrowed more than a few million in CIB dollars before.
New massive loans were made possible under SB246, passed on the final day of the 2016 legislative session after impassioned pleas from House members who argued it was needed to protect jobs in Utah's coal-mining heartland.
"This nation was built on the back of energy, coal in particular," Carbon County Commission Chairman Jae Potter told the CIB on Wednesday.
Carbon leads the four-county group hoping to invest in the export terminal, contending coal will continue to play a vital role meeting global energy needs. The terminal has direct rail connections to Utah, and the counties hope to secure nearly half of its 9-million-metric-ton loading capacity.
Potter noted renewable power sources are notoriously intermittent, and called out the Spanish Fork wind farm, whose nine turbines were not spinning Wednesday when he drove by on his way to Salt Lake City.
"Half of our energy is generated by coal. If it wasn't for fossil fuel power you would all be in the dark. The war on coal is unfounded. It is foolish to say you don't need those kinds of resources," said Potter, himself a CIB member. He said global coal demand is expected to rise 10 to 15 percent in the coming decade.
Coal's role in domestic power generation, however, is in steep decline, which is the main reason why Western states are eager to develop Asian markets for their coal. According to the U.S. Energy Information Administration, natural gas is expected to surpass coal for use in electrical power this year. Each now account for about 32 percent of America's electricity.
Analysts from Goldman Sachs and other investment banks caution against betting on seaborne coal exports because China's appetite for coal is cooling and India is turning to domestic supplies.
But Potter insists Asia wants bituminous coal from the Western U.S. because it is low in sulfur and provides more energy than most coal. Each ton of Utah coal burned in Chinese power plants would displace two tons of Asia's dirty coal, he claimed.
"One country told us, 'Do the world a favor, sell us your coal,'" Potter said.
Bowie Resource Partners already exports up to 5 million tons of Utah coal through two shallow-draft Bay Area ports at Stockton and Richmond. The ability to ship the coal aboard bigger ships loaded at a port with deeper water will lower transportation costs for Utah coal, making it more competitive, investment banker Jeff Holt told the board. A former CIB member, Holt is the terminal's key financier.
The Oakland terminal would present opportunities to export other Western minerals, including soda ash, CIB members said.
However, Utah does not produce soda ash, an important export mineral needed for a variety of industrial processes. The soda ash discussion suggests the Utah counties may sublease their share of the terminal's capacity to another state, such as Wyoming, which mines huge quantities of trona and refines it into soda ash.
Bowie, Utah's largest coal producer, has tried to buy into Wyoming's trona industry in an effort to diversify away from coal.
It's not clear how moving another state's minerals through a California port would protect jobs around Price and Richfield.
Under SB246, the state will transfer $26 million from the general fund to the new loan fund on July 1, then another $27 million next year. CIB will repay the general fund from federal mineral royalties. Normally such money is designated for community-based projects, such as roads, wastewater treatment, public safety and recreation centers.