Special report wall street cleans up on ‘clean’ coal subsidies – netscape news gas prices mesa az costco

A.J. Gallagher’s experience reflects a truth about the U.S. Refined coal tax credit, a subsidy that now costs taxpayers about $1 billion a year: while coal mining firms, utility companies and power consumers can benefit indirectly from the subsidy, the big winners are a diverse group of investors – ranging from wall street’s most powerful banks to insurers, meat packers and drug makers – who identified the incentive as an easy way to make money.

Over the past decade, these companies have financed the construction of facilities to produce refined coal, which are situated next to coal-fired power plants and typically cost about $4 million to $6 million each to develop. They then sell the resulting coal to utilities below cost, but make eye-popping returns from the subsidy rather than the underlying business, according to regulatory documents and interviews.

While the subsidy has proven a boon for investors, it has often failed to achieve the intended reductions of nitrogen oxides, or nox, the primary contributor to smog and acid rain. Utilities that burn refined coal have trailed competitors burning raw coal in lowering nox emissions, and 22 of 56 plants burning refined coal have seen nox emission rates rise instead of fall, according to a reuters analysis of EPA emissions data vetted by industry experts.

The refined coal tax subsidy is scheduled to expire in 2021. But lawmakers, including republican senator john hoeven of coal-producing north dakota, have introduced legislation to extend it another 10 years. They argue it helps the environment, extends the life of the ailing coal industry – a centerpiece of the trump administration’s energy policy – and reduces power prices by giving utilities a cheap, subsidized source of coal.

If the extension goes through, those best placed to gain from the subsidy are an eclectic list of refined coal investors, including wall street banks goldman sachs group inc , jpmorgan chase co inc and capital one financial corp ; wealth management giant fidelity investments; drugmaker mylan NV ; U.S. Affiliates of global commodities trader noble group ltd ; industrial supplier W.W. Grainger inc ; kansas-based pork producer seaboard corp ; and ethanol plant investor rex american resources corp , according to disclosures with the U.S. Cost of gas cross country trip securities and exchange commission, state environmental regulators and the U.S. Cost of natural gas in chicago tax court.

The policy edit – by democrat max baucus of coal mining state montana and republican chuck grassley of iowa – made it possible for refined coal producers to receive the subsidy even if they sold their product to utilities below cost. That paved the way for investors to set up operations and to ultimately make billions of dollars building refined coal to its current share of about a fifth of the U.S. Coal market.

Baucus said he does not remember the change to the refined coal tax credit. “it was a tax-credit blizzard; a deluge of credits was being discussed,” baucus said. “it’s very easy to change the code to give credit to companies to spur investment. The code gets crusted with barnacles of credits, and then they’re removed. It’s the natural ebb and flow of things.”

The subsidy is now worth more than $7 a ton, an amount that covers losses on the discounted pricing and the operations that produce refined coal, while often leaving a profit that can amount to tens or hundreds of millions of dollars per year per investor, according to disclosures by tax credit investors. Because some of the operating expenses of running a refined coal facility are deductible, the tax credit’s effective value can top $9 a ton.

Goldman sachs, in 2011, purchased a 15 percent stake in the joint venture, a refined coal operator called tinuum group LLC, formerly known as clean coal solutions, for $60 million. Advanced emissions owns a 42.5 percent stake in tinuum, whose operations produced and sold about 60 million tons of refined coal during the 12-month period that ended sept. 30, SEC disclosures show.

The bank and the trash company invested in a facility that treats coal by preheating it in a process that dries out several million tons of soggy lignite coal each year, increasing its energy output. Electric cooperative great river energy, the owner of the plant, agreed to lease its refined coal facility to jpmorgan and waste management for $530 million over 16 years, according to a january 2011 deal disclosed by the co-op.JPMorgan and waste management declined to comment for this story.

Power plant owners typically sell their coal at cost to refined coal operations controlled by tax credit investors. Once the coal is treated with chemicals or dried out at an on-site refined coal facility, the tax credit investors sell the coal back to the power plants at a discount that can be anywhere from 75 cents to $2 per ton – a way to ensure utilities get some benefit from the subsidy, according to agreements filed with state regulators. Central-appalachian coal, which has high energy content for power generation, costs about $75 a ton.

Last year, louisville gas electric and kentucky utilities, a unit of PPL corp , struck a deal with an affiliate of goldman sachs to burn refined coal at the utility’s ghent power station. The utility stands to receive $10 million a year in incentives and would bear no expense for running the refined coal operations, according to disclosures with kentucky regulators.

Utility companies themselves haven’t been in the vanguard of capitalizing on the refined coal subsidy. Cost of gas in chicago that’s because the original wording of the refined coal tax credit, passed in 2004, stipulated that the producer of refined coal had to sell it to an “unrelated person.” so, utilities couldn’t invest in clean coal and sell it to themselves.

The IRS issued new guidance in 2009, however, that opened the door for affiliates of utilities like detroit-based DTE energy to control or take stakes in refined coal production facilities in recent years. DTE has received some $639 million in refined coal tax credits since 2012, SEC disclosures show. DTE declined to comment for this story.

In today’s thriving clean coal industry, A.J. Gallagher’s early moves to monetize the tax credit seem prescient. Find how much gas will cost for trip months before the subsidy first entered the tax code in 2004, the company paid $300,000 for a 5 percent ownership stake in chem-mod, which at the time was developing chemical treatments designed to reduce coal pollution. A core group of five people at A.J. Gallagher was overseeing the move into the business, according to the company’s disclosures to investors.

A.J. Gallagher was among several investors who paid washington firms to lobby on refined coal, according to lobbying disclosure filings. In 2008, before congress modified the refined coal tax credit to erase the market-value clause, the company paid two law firms – winston strawn, and steptoe johnson – to lobby on “refined coal” and “energy and tax” issues, respectively. The lobbying disclosure documents do not detail what specific objective the companies had in their lobbying activities.

David lowman, a partner at hunton andrews kurth LLP, was lobbying on refined coal on behalf of a different company at the time. He said the refined coal industry successfully pushed to have the market value clause eliminated. In return, the industry agreed to double the pollution reduction requirement on mercury and sulfur dioxide to 40 percent from 20 percent.

The dive into a newly subsidized business was part of the company’s strategy to find profits in taxpayer-financed incentives. Dating to the 1980s, arthur J. Gallagher has sought out opportunities, for example, in subsidized low-income housing and the so-called synfuel tax credit, designed to promote domestically-produced synthetic fuels that can reduce U.S. Import dependence.

Gallagher’s approach to refined coal, however, has made it a heavyweight, and it has been pivotal in recruiting tax investors to help finance refined coal operations throughout the country. In 2009, it negotiated partnerships with fidelity and the U.S. Subsidiary of france’s schneider electric SE to produce refined coal for a utility at three south carolina power plants, U.S. Tax court disclosures show. Gallagher also has struck deals to put refined coal operations inside the fence of power plants owned by DTE and st. Cheap gas prices by state louis-based utility ameren corp .