Utah’s top coal producer is fighting to reverse a California city’s ban on exporting coal and open new markets for local mines

Initial arguments start Wednesday in a federal lawsuit backed by Bowie Resource Partners to reverse Oakland’s coal ban — and potentially open new markets for Utah mines.

Between Utah’s rich coal beds and potential markets overseas lie 850 miles of rail track and 5,000 miles of ocean that converge in the California port city of Oakland.

A proposed Oakland export terminal once promised an economic lift for distressed portions of California’s prosperous East Bay — and a new conduit for Utah’s coal to reach Asian markets. But the controversial project is now mired in a legal swamp, as one of Northern California’s most prominent developers takes on his own city over a coal-handling ban Oakland leaders enacted in 2016.

Under agreements with the city, which owns the 35-acre site known as West Gateway, Phil Tagami is developing a deep-water bulk-freight loading station on a decommissioned military base at the foot of the Bay Bridge. But those plans jackknifed in 2016 after word got out that four coal-producing Utah counties had pledged $53 million toward the project, called Oakland Bulk and Oversized Terminal, or OBOT, in exchange for guaranteed export capacity.

News of that Utah connection ignited a political firestorm that led to Oakland City Council’s vote to prohibit coal; Tagami responded with a federal suit that heads to trial this month in a San Francisco courtroom. The suit alleges Tagami’s firm holds a “vested right” to process any legal commodity it chooses at the terminal.

Key adversaries in the drama include Utah’s leading coal producer Bowie Resource Partners and activist groups looking to reduce global reliance on the carbon-heavy fuel most closely linked to climate change.

And according to court filings, the firm that would operate the Oakland export station is a wholly owned subsidiary of Bowie Resource Partners, which is bankrolling Tagami’s suit to the tune of at least $1.7 million.

New markets vs. health worries

Domestic demand for coal is plummeting as power utilities turn to cleaner energy sources for electricity generation, so industry officials see Asia’s expanding economies as an alternate destination for the West’s relatively clean, high-energy coal.

West Coast cities — populated with residents concerned about coal’s greenhouse gas emissions — are balking at the prospect of their ports expanding the trade.

But Oakland’s legal rationale for blocking coal is strictly about local impacts to public health as opposed to broader climate concerns, according to Aaron Reavin, an Oakland schoolteacher.

“It was totally within [Oakland’s] authority under the agreement with Phil Tagami to act on health and safety issues. There was a tremendous amount of medical and scientific evidence marshaled to support banning the handling of coal,” said Reavin, a coordinator with the grassroots group No Coal in Oakland. “Of course climate issues play into this. To us, they are twin evils.”

Reavin’s is among a host of groups — including the California Attorney General’s Office — filing briefs in the lawsuit in support of the coal ban. The Sierra Club, an environmental group, has intervened on Oakland’s side, along with San Francisco Baykeeper, which advocates for ecosystems and communities relying on the bay.

On Wednesday, U.S. District Judge Vince Chhabria will wade through a series of court motions seeking quick resolution to the case. Both sides are asking the federal judge for summary judgments in their favor without a two-week trial, which is now scheduled to begin Jan. 16.

Oakland and its allies say by enacting the coal ban, the city exercised its duty to protect residents from coal dust that would waft off trains, conveyors and loading pits and potentially accumulate to explosive levels in the terminal’s containment structures.

The ‘hidden‘ Utah link

They also allege Tagami and his associates deceived city officials by falsely denying coal would be part of the project, then concealing the central role they hoped Utah coal would play for more than a year.

In 2014, Tagami entered a secret deal with the Bowie subsidiary Terminal Logistics Solutions, granting the coal producer an option to sublease the West Gateway, the city claims in its filings. Under that arrangement, which has netted Tagami $1.2 million in a series of payments from Bowie, the coal producer would own and operate the terminal for the sake of exporting coal from Utah’s Sufco, Skyline and Dugout mines.

In April 2015, a state panel called the Utah Permanent Community Impact Board (CIB) let the cat out of the bag when it approved an unusual $53 million loan to Sevier, Carbon, Emery and Sanpete counties to invest in the project. The investment guaranteed 5 million to 10 million tons of Utah coal would move through the California terminal every year.

The revelation stunned Oakland city leaders, who opened a formal inquiry into the environmental and health impacts of processing coal.

The city’s subsequent ban on coal handling, however, runs afoul of the law on three grounds, according to Tagami’s suit. It poses an unconstitutional restraint on interstate commerce; it is trumped by three federal laws regulating rail transportation; and it breaches various agreements between Oakland and Tagami’s development firm.

The terminal would be designed to keep coal dust from escaping into the environment, Tagami’s lawyers argued in court filings, while existing laws and a permitting process for the project would protect the health and safety of nearby residents and workers.

“While the Terminal has always been planned as a multi-commodity bulk terminal,” Tagami’s lawyers wrote, “such terminals often require an ‘anchor tenant’ to make the terminal financially feasible; Bowie’s bituminous coal from Utah is currently the ‘anchor tenant.’ ”

Project in detail

Rail cars carrying the coal would be specially equipped with covers, although such cars are not currently in use. Railroad giant Union Pacific would ship the coal in 100-plus-car “unit trains” from Utah sites to Oakland, where an intermediary carrier called Oakland Global Rail Enterprises would perform “last mile” services.

OGRE would break the trains into 26-car sections that would be unloaded in enclosed dump pits, according to Tagami’s filings. OGRE would then reconnect the emptied cars, air test and inspect them before sending them back to Utah. Bowie would own the coal all the way through transport from the mines, processing at the terminal and loading onto ships before setting sail.

Bowie has already been exporting some of its Utah coal through other California ports in Richmond, Stockton and Long Beach, but those shallow-water terminals can’t handle the deep-drafting freighters coal producers need to export profitably.

In the meantime, some Utah officials have tempered their enthusiasm for the Oakland project. Carbon County Commissioner Jae Potter declined to comment on his county’s current interest in the terminal while the litigation remains unresolved.

State lawmakers have since diverted the $53 million initially slated for the export terminal to a special revolving-loan program supporting “throughput infrastructure.” That new program’s goal is to spur rural economic development by building facilities to deliver commodities extracted in Utah to out-of-state markets.

The Oakland terminal could still be eligible for state money, but it would be in competition with other proposals.

”If there is a viable application that provides benefit to the people of Utah and the [community impact] board approves it, there would be interest,” said CIB chairman Jonathan Hardy. “There are other projects that could be funded if [the export terminal] doesn’t pan out.”

Proposals in the works that could qualify for CIB money include an oil pipeline, a rail project and a power transmission line, Hardy said, but none has yet applied for a loan.

California’s AG weighs in

Still, Tagami has to win his lawsuit before his project can receive another dollar of Utah’s money or another pound of coal. The developer has a long list of opponents lined up against him, including California Attorney General Xavier Becerra, who filed an amicus brief saying Tagami’s suit undermines the authority of local and state governments.

Becerra accused the developer of trying to expand the reach of federal laws “to prevent Oakland from exercising its police power to protect some of its most vulnerable residents from dangerous pollution.”

The ban does not restrict rail transport of coal through the city, but rather its unloading, loading, storage and intermodal transfer.

Opponents of the coal terminal argue no amount of mitigation would prevent the release of harmful dust into a neighborhood that has been burdened with industrial pollutants for years. West Oakland residents suffer from higher rates of asthma and other chronic illness and can expect shorter lives than residents of more affluent neighborhoods, Becerra wrote.

But in Utah’s coal country, Carbon County residents are also at something of an economic disadvantage and experience some of the state’s poorest health outcomes. And some leaders there point to the disappearance of resource-extraction jobs that had once sustained Utah’s rural economies.