The state of Wyoming once again threw its support behind a proposed joint venture involving two of its leading coal operators this week.
In an amicus curiae brief filed Tuesday in the U.S. District Court for the Eastern District of Missouri, state attorneys opposed the Federal Trade Commission’s recent move to block the joint venture proposed by coal firms Peabody Energy Corp. and Arch Resources Inc.
In February, the FTC filed a preliminary injunction to stop Peabody and Arch’s attempt to combine their coal operations under one roof. The two companies operate five coal mines in Wyoming and hoped to join ventures and reduce costs. But the FTC, charged with protecting consumers, is concerned the move could stifle competition and hurt the public by hiking up prices for coal.
The two coal firms control about two-thirds of the southern Powder River Basin’s coal reserves, making them the biggest players in the basin.
In response to the federal agency’s decision to halt the venture and take the coal operators to court, Gov. Mark Gordon and the Wyoming Attorney General’s Office reaffirmed their support of the coal companies’ plan.
“In Wyoming’s view, the benefits of the proposed joint venture to the public plainly outweigh the unlikely anti-competitive effects,” Deputy Attorney General James Kaste wrote in court documents. “It just does not make sense to Wyoming that the merged entity can or will raise prices; effectively cutting off its nose to spite its face. Nor does it makes sense to Wyoming to conclude that a reduction in production is anti-competitive rather than a reasonable and necessary response to reduced demand. A healthy, albeit consolidated, coal production industry benefits the mines, the miners, the State, its citizens, and the public at large.”
The coal operators have said the joint venture would increase their cost competitiveness and help them survive. Coal’s ranking in the power generation market has been under siege in recent years with the expansion of affordable natural gas and renewable energy.
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. The joint venture would save the companies roughly $120 million each year for the next decade during a time when the firms must operate amidst thermal coal’s brutal market conditions, the firms 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.
Gov. Mark Gordon immediately opposed the FTC’s decision back in February too, calling the decision “a nail into an industry which is struggling to adapt to a rapidly changing marketplace.” He also cited the potential job losses at coal mines in the basin if controlled consolidation does not occur.
Production losses in coal country have significant consequences 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, the Attorney General’s Office outlined in court documents. Overcapacity in the basin (or too many coal operators vying for too few customers) has sent five firms operating in the Powder River Basin into bankruptcy since 2015.
“While there will be coal production in Wyoming for the foreseeable future, it will be on a significantly reduced scale,” stated Kaste, Wyoming’s attorney. “The industry must contract and consolidate to survive. That can be managed in a thoughtful way that minimizes harm or it can happen haphazardly through bankruptcies and sudden mine closures.”
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% of the nation’s coal, production volumes have tumbled. 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.
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.
The case is being heard in the U.S. District Court for the Eastern District of Missouri.
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