The Federal Trade Commission filed a formal challenge Wednesday to a proposed joint venture between two Powder River Basin coal companies due to concerns the move could stifle competition.
The action throws Peabody Energy’s and Arch Coal’s venture to combine the nation’s two biggest mines into question.
The complaint, filed in the U.S. District Court for the Eastern District of Missouri, requests an administrative trial and, in the meantime, a temporary restraining order and preliminary injunction for the deal.
“Whatever the product, the antitrust laws protect customers from mergers that lead to higher prices,” Ian Conner, director of the FTC’s Bureau of Competition, said in a statement. “This joint venture would eliminate the substantial head-to-head competition between the two largest coal miners in the United States, and that loss of competition would likely raise coal prices to power-generating utilities that provide electricity to millions of Americans.”
In a statement, Peabody Energy said the commission had made the wrong decision, one that should be fixed quickly within the court system.
“The proposed joint venture offers a clear and compelling path to strengthen both our and our customers’ ability to compete in today’s marketplace with electricity produced from coal,” Peabody President and CEO Glenn Kellow said. “We have provided tremendous amounts of evidence to the FTC during an extensive review, fully demonstrating that coal, including Southern Powder River Basin coal, faces intense competition from natural gas and other alternate fuels.”
Arch Coal also defended the merits of the proposed deal, saying it would help boost competition in the thermal coal market.
“We view the need for this combination as self-evident,” said John Eaves, Arch Coal’s CEO. “The proposed joint venture promises to enhance the cost-competitiveness of our thermal operations, enable us to serve the evolving needs of domestic power generators well into the future, and protect the value of our thermal assets for our shareholders.”
The pair of coal operators control two-thirds of the southern Powder River Basin’s coal reserves, making them the biggest players in the basin, according to the FTC. Combining the firms’ operations could result in “significant harm” to coal customers, if the single producer decided to contract production and hike up prices, the commission reasoned.
In a statement, Wyoming Gov. Mark Gordon sharply criticized the FTC’s decision.
“I believe this complaint by the Federal Trade Commission is a wrongheaded attempt to drive a nail into an industry which is struggling to adapt to a rapidly changing marketplace,” he said. “It could also result in significant impacts to the workforce of the North Antelope Rochelle and Black Thunder coal mines.
“Today’s energy marketplace is broad and includes wind, solar, natural gas, hydroelectric and geothermal, all of which have become more competitive since 2018. The FTC appears to have ignored this fact, and seems intent on extending the uncertainty facing coal companies in the Powder River Basin. I don’t believe the broader energy marketplace will benefit from a challenge to this merger, or see higher prices. We will be watching this court case closely.”
Peabody Energy and Arch Coal announced plans to combine operations in June, a proposal that would bring North Antelope Rochelle and Black Thunder under one roof. The joint venture would also include the nearby Caballo, Rawhide and Coal Creek mines. If approved, the deal would allow the company to control production, curb competition and cut costs, according to several analysts.
The announcement sent chills through the basin’s smaller companies. Locals have responded with optimism and several public officials lauded the agreement as positive for the basin. But the coal industry is in trouble as demand for the commodity craters nationwide. North Antelope Rochelle mine produced 21.4 million tons of coal during last year’s final quarter, over 13 percent less than in 2018.
“I think the significance for Wyoming is that (the complaint) potentially either slows or puts a hold on the natural means of solving the over-capacity issue in the state,” University of Wyoming economist Rob Godby said. “Fundamentally, the problem is that we have too much supply and too many mines chasing too few customers — that’s hurting both the mines and the industry.”
Stock prices for the two companies tumbled Wednesday in the wake of the commission’s complaint, with Peabody Energy’s stock falling 13 percent and Arch Coal’s 8 percent, a sign investors may have been caught off guard by the challenge, analysts said.
Benjamin Nelson, a lead coal analyst at Moody’s Investors Service called the FTC’s attempt to block the deal a “credit negative development” for the coal companies.“Moody’s expects that business conditions for coal producers in the Powder River Basin will remain extremely challenging in light of ongoing secular decline in the demand for thermal coal, low natural gas prices encouraging switching in the near-to-medium term and far fewer opportunities to export coal compared to other coal basins in part due to social opposition in the Pacific Northwest,” Nelson said in an email.
The administrative trial is set to take place on Aug. 11.
Follow the latest on Wyoming’s energy industry @camillereports
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Energy and Natural Resources Reporter
Camille Erickson covers the state's energy industries. She received her master's degree at Northwestern University's Medill School of Journalism. Before moving to Casper in 2019, she reported on business and labor in Minneapolis, Chicago and Washington.