Over one year ago, two of the nation’s leading coal companies proposed a plan to form a joint venture and combine operations in Wyoming. The decision came as a surprise to many in the state where the companies operate five coal mines. But this spring, the federal government moved to block the venture planned by Peabody Energy Corp. and Arch Resources Inc. over concerns the move could stifle competition and hurt consumers by hiking up prices for the commodity.
Now, the coal companies behind the proposal have moved to defend their joint venture in federal court.
The Federal Trade Commission’s formal challenge in February threw into jeopardy Peabody and Arch’s dream to combine into one operation. But Peabody and Arch filed a memorandum in federal court Wednesday, opposing the FTC’s decision to block the venture. Arch Resources changed its name from Arch Coal in May.
“(T)he only way for coal producers to try to remain competitive with natural gas and renewables is to further reduce costs,” counsel for the companies state in court documents filed Wednesday. “That is precisely what the joint venture between Peabody and Arch(‘s Joint Venture) is designed to do — combine adjoining and complementary mining assets, realize significant cost savings achievable only through the Joint Venture, use those efficiencies to provide better pricing and service, and compete more effectively against other fuels.”
The joint venture would save the companies approximately $120 million each year for the next decade during a time when the firms must operate amidst thermal coal’s brutal market conditions, the companies argue.
Peabody owns the North Antelope Rochelle mine, the largest coal mine in the country. Arch Resources owns neighboring Black Thunder. In addition to these two mammoth mines, the joint venture would include the Rawhide, Caballo and Coal Creek mines in the Powder River Basin, as well as a pair of mines in Colorado. Under the companies’ proposed plan, Peabody would own 66.5% of the venture, and Arch would claim 33.5%.
Analysts have noted the move could help the companies control production in the basin, curb competition from neighboring coal operators and ultimately save the firms money. For instance, the pair could share equipment, marketing and other resources.
But the FTC sees the action to join forces as potentially harmful to the public and economy by creating a monopoly. The two coal operators already control two-thirds of the southern Powder River Basin’s coal reserves, making them the biggest players in the basin. Combining the firms’ operations under single management could result in “significant harm” to coal customers, if the single producer decided to contract production and hike up prices, the commission reasoned in its February announcement.
Gov. Mark Gordon has opposed the FTC’s decision. According to the governor’s spokesman, Wyoming’s attorney general plans to file an amicus brief in support of Peabody and Arch’s proposed joint venture soon.
The state has long supported Wyoming’s colossal coal operations. In recent years, lawmakers have also been determined to buoy it.
Losses in coal country have significant ramifications for the state — heightening unemployment and exacerbating revenue shortfalls. One in 10 jobs in the Powder River Basin depends on coal, according to research conducted by University of Wyoming economist Rob Godby in 2015. Last quarter, the coal industry supported some 4,500 jobs.
A combined Peabody and Arch venture would likely translate into more stability and certainty for the coal-dependent state, Godby explained. Overcapacity in the basin (or too many coal operators vying for too few customers) has sent some firms off the cliff into bankruptcy. Since 2015, six coal companies with operations in Wyoming have filed for bankruptcy.
The Powder River Basin’s coal sector has struggled to maintain its dominant position in the electricity generation market in the past decade. Though the basin still pumps out roughly 40 percent of the nation’s coal, natural gas and renewable energy sources have started to push coal out of the electricity market.
Fifteen years ago, coal was responsible for generating about 50% of the country’s electricity. Last year, coal’s contributions were half that amount. Coal-fired power plants have started to shut down, chipping away at what demand for coal there is. A decade ago, Wyoming’s coal epicenter produced over 400 million tons of the commodity. Last year, the basin’s mines pumped out much less, just 267 million tons.
“What is really necessary is some sort of consolidation in the basin,” Godby reasoned. “You can have a declining coal industry that is still healthy, but that is not what we have in the basin.”
In response to these rapidly changing conditions, coal operators, including Peabody and Arch, have been hunting for ways to cut costs and keep their foothold in the electricity markets.
What Peabody and Arch have argued is that their merger would actually create greater profitability and there would still be competition in the basin, Godby added.
The case is being heard in the U.S. District Court for the Eastern District of Missouri.
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