Judge Blocks Proposed Peabody-Arch Merger

A federal judge today approved the Federal Trade Commission's motion to block the proposed Peabody Energy Corp.-Arch Resources Inc. joint venture in the Powder River Basin. (H/t Pamela King/E&E News)
A federal judge today approved the Federal Trade Commission's motion to block the proposed Peabody Energy Corp.-Arch Resources Inc. joint venture in the Powder River Basin. (H/t Pamela King/E&E News)

By James Marshall, E&E News PM, E&E News

A federal judge today blocked a joint venture between the country’s two largest coal companies after the Federal Trade Commission argued that the merger would reduce competition.

The ruling is a severe blow to Peabody Energy Corp. and Arch Resources Inc., which last summer proposed combining their vast coal operations in Wyoming and Colorado to help them compete with renewables and natural gas.

Peabody and Arch control nearly two-thirds of coal reserves in the Powder River Basin mining region in Wyoming, which is the center of U.S. coal production.

The FTC moved to block the joint venture in February on antitrust grounds. It argued that the merger would allow Peabody and Arch to raise coal prices for utilities, which could push that cost onto ratepayers (Greenwire, Sept. 22, reprinted on County 17).

Judge Sarah Pitlyk of the U.S. District Court for the Eastern District of Missouri today granted a preliminary injunction sought by the FTC.

“The FTC has shown that there is a reasonable probability that the proposed joint venture will substantially impair competition in the market for Southern Powder River Basin coal and that the equities weigh in favor of injunctive relief,” the Trump-appointed judge wrote in an order.

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Some power plants are specifically designed to burn the low-sulfur coal from the southern Powder River Basin. That limits the pool of potential suppliers for many utilities, the FTC said.

Peabody and Arch argued that they are competing with other energy sources, not just Wyoming coal suppliers.

“We are deeply disappointed with the court’s decision as the intense all-fuels competition is clearly apparent to us,” Peabody CEO Glenn Kellow said in a statement. “Our focus now is on continuing to be the low-cost PRB provider to best compete against natural gas and subsidized renewables.”

The ruling hastens Arch’s departure from thermal coal markets. The St. Louis-based company intends to focus on steelmaking coal and potentially sell off its thermal assets.

“While we are disappointed with the court’s decision, we intend to move full speed ahead with our strategic pivot towards steel and metallurgical markets,” said Arch CEO Paul Lang.

“We will be intensifying our pursuit of strategic alternatives for our thermal assets – including, among other things, potential divestiture – while evaluating opportunities to shrink the operational footprint at those mines,” he added.

Arch said neither company will challenge the ruling.

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The state of Wyoming supported Peabody and Arch’s proposal. In an amicus brief, it argued that consolidation among coal companies will be necessary to avoid the negative impacts that unexpected bankruptcies have had on local communities.

In Wyoming, Peabody’s North Antelope Rochelle and Arch’s Black Thunder are by far the largest coal mines in the nation. They were once prized assets, but weak coal demand has caused production to drop for a decade. Peabody last month slashed the value of North Antelope Rochelle by $1.4 billion (Greenwire, Aug. 6).

Benjamin Nelson, lead coal analyst at Moody’s Investors Service, said coal’s downward spiral will continue in the Powder River Basin, which includes parts of southeast Montana.

“We expect the Powder River Basin coal production region will remain under significant pressure in 2021 and at least a few coal mines in the region could close in the early 2020s,” he said in a statement.

 

Reprinted from E&E News PM with the permission of E&E News. Copyright 2020. E&E News provides essential news for energy and environment professionals at www.eenews.net.