NACCO Industries (NC) Risk Analysis

The marketability of our third-party lessee's production depends in part on the availability, proximity, and capacity of pipelines, tanker trucks, and other transportation methods, and processing and refining facilities owned by third parties as well as continued reliable operation of the U.S power grid. Any significant disruption in the U.S. power grid, gathering system or transportation, processing, or refining-facility capacity could reduce our third-party lessee's ability to market oil production and may adversely affect the Minerals Management segment's financial condition or results of operations.

We hold a number of insurance policies, including director and officers' liability and property and casualty insurance coverages. Because we are involved in coal mining, costs of insurance may increase substantially or insurance carriers may limit or decide not to insure us in the future. In addition, if we make significant insurance claims under our insurance policies, such claims may have a material adverse effect on our ability to obtain future insurance coverage at commercially reasonable rates. Limited, or an inability to obtain, insurance coverage, significant increases in the premiums or deductibles of insurance, or losses in excess of our liability insurance coverage limits, could have a material adverse effect on our operating results and financial condition.

The coal mining industry and the electric generation industry are subject to extensive regulation by federal, state and local authorities on matters concerning the health and safety of employees, land use, stream and wetland protection, permit and licensing requirements, air and water quality standards, plant and wildlife protection, reclamation and restoration of mining properties after mining, the discharge of GHGs and other materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability. Legislation mandating certain benefits for current and retired coal miners also affects the industry. Mining operations require numerous governmental and regulatory permits and approvals. We are required to prepare and present to federal, state or local authorities data pertaining to the impact the production and combustion of coal may have upon the environment. The public, including non-governmental organizations, opposition groups and individuals, have statutory rights to comment upon and submit objections to requested permits and approvals and to legally challenge certain permits subsequent to their issuance. Compliance with these requirements is costly and time-consuming and may delay commencement or continuation of development or production. New legislation and/or regulations and orders may materially adversely affect our mining operations, cost structure or customers. All of these factors could significantly reduce our profitability. Congress has considered climate change legislation aimed at reducing GHG emissions, particularly from coal combustion by power plants. Enactment of laws and passage of regulations regarding GHG emissions at the federal or state level, or other actions to limit carbon dioxide emissions, such as opposition by environmental groups of coal-fired power plants, could result in electric generators switching from coal to other fuel sources or premature facility closures. Congress continues to consider a variety of proposals to reduce GHG emissions from the combustion of coal and other fuels. These proposals include emission taxes, emission reductions, including carbon tax and cap-and-trade programs, and mandates or incentives to generate electricity by using renewable energy sources, such as wind or solar power. Some states have established programs to reduce GHG emissions. Further, certain governmental agencies provide grants or other financial incentives to entities developing or selling alternative energy sources with lower levels of GHG emissions, which may lead to more competition from those entities. The potential impact on us of future laws, regulations or other policies or circumstances will depend upon the degree to which any such laws, regulations or other policies or circumstances require electricity generators to diminish their reliance on coal as a fuel source. Complicating these matters further, over the last several decades, U.S. Administrations have increasingly relied on regulations and executive orders to implement environmental policies and objectives in the absence of Congressional agreement regarding new legislation. This condition, which creates instability and unpredictability of environmental regulations, seems likely to persist and could increase due to apparent polarization between the two main political parties. As a result, we and/or our customers, often must comply with and otherwise adapt to environmental regulations without assurance of their continued effect. We and/or our customers often do not have the ability to anticipate, or prepare in advance for, changes in regulatory approaches that may be implemented following a change in Administration. The SCOTUS's recent decision in Loper Bright Enterprises v. Raimondo overturned the SCOTUS's longstanding deferral to the applicable agency's interpretation of ambiguous federal laws. We are unable to predict whether, or to what extent, this decision will alter the outcome of judicial reviews of current or future regulations. We do not know whether risks related to current and future regulations affecting us will be significantly mitigated by the decision in Loper Bright. In view of the significant uncertainty surrounding each of these factors, it is not possible for us to predict reasonably the impact that any such laws, regulations or other policies may have on our business, financial condition and results of operations. However, such impacts could have a material adverse effect on our business, financial condition and results of operations. See Item 1. Business - Government Regulation on page 9 in this Form 10-K for discussion of regulations that could materially adversely affect the Coal Mining segment.

The amount of coal consumed by the electric power generation industry is affected by general economic conditions; overall demand for electricity; availability of transmission; competition from alternative fuel sources for power generation, such as natural gas, nuclear, hydroelectric, wind and solar power, and the location, availability, quality and price of those alternative fuel sources; environmental and other governmental regulations, including those impacting coal-fired power plants; and energy conservation efforts and related governmental policies. Changes in the utility industry that affect NACCO's customers could also adversely affect us. The increased availability of renewable energy sources has contributed to a reduction in demand for coal-fired electric power generation. Competition from natural gas-fired plants that are relatively more efficient, less expensive to construct and less difficult to permit than coal-fired plants have the most potential to continue to displace a significant amount of coal-fired electric power generation. Federal and state mandates for increased use of electricity derived from renewable energy sources have also adversely affected demand for coal-fired electric power generation. Such mandates make alternative fuel sources more competitive with coal-fired electric power generation. Any of these risks could result in a decrease in coal consumption by our customers and could have a material adverse effect on our business, financial condition and results of operations.