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Trump appointees vote to block US coal joint-venture

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Via Financial Times

A US antitrust regulator has sued to block a joint venture between Peabody Energy and Arch Coal, undercutting efforts by the nation’s two largest coal companies to survive as the fuel loses ground to natural gas, solar and wind energy.

The Federal Trade Commission voted four to one to challenge the tie-up and seek a restraining order and injunction to freeze its progress. All five commissioners were nominated by President Donald Trump, who campaigned in 2016 on promises to revive the coal industry.

“This joint venture would eliminate the substantial head-to-head competition between the two largest coal miners in the United States,” said Ian Conner, director of the FTC bureau of competition. “That loss of competition would likely raise coal prices to power-generating utilities that provide electricity to millions of Americans.”

The US thermal coal industry is in crisis as gas-fired power stations and utility-scale wind and solar farms replace coal-fuelled power plants built decades ago. The US electric power sector will burn 465m short tons of coal this year, down more than half from a peak earlier this century, the government estimates.

The contraction has been brutal in the Powder River Basin of Wyoming, where Peabody, Arch and other producers scrape coal from the sheer faces of open-pit mines. The state is under fiscal pressure as tax and royalty revenue dry up.

Line chart of Million short tons showing Coal use by US power stations

The joint venture would have included Peabody’s North Antelope Rochelle, the world’s largest coal mine, and Arch’s Black Thunder mine. The two share a seven-mile boundary in the basin, together yielding 157m short tons of coal last year, according to Hanou Energy Consulting.

showing coal production in the Powder River Basin, US

The FTC noted that Peabody and Arch produced more than 60 per cent of the coal in the southern Powder River Basin. “Whatever the product, the antitrust laws protect customers from mergers that led to higher prices,” said Mr Conner.

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Both companies’ shares fell to their lowest point since emerging from bankruptcy protection in the last decade, with Peabody dropping 12.6 per cent to $5.64 and Arch falling 7.3 per cent to $46.96 by late-afternoon in New York.

The price of the coal mined in the southern Powder River Basin has been stuck at around $12 per short ton for months. However, even that low price has made it difficult for miners to compete with cheap natural gas. Utilities and corporate energy users under pressure to “green” their businesses have also been aggressively buying power from solar and wind farms.

Peabody and Arch agreed the tie-up last June, saying it would save $120m over 10 years. They said Wednesday they intend to fight the FTC, arguing that it misunderstood the US energy market.

Coal from the Powder River Basin “faces intense competition from natural gas and other alternate fuels. We believe that the commission has reached an incorrect decision that should be rapidly remedied within the court system to allow customers and others to benefit from the combination,” said Glenn Kellow, chief executive of St Louis-based Peabody.

Mark Gordon, Wyoming state governor, a Republican, said the FTC appeared to have ignored competition for coal from wind, solar, gas, hydroelectric and geothermal fuel sources, calling the suit “a wrong-headed attempt to drive a nail into an industry which is struggling to adapt to a rapidly changing marketplace”.

Highlighting pressure on the miners, Peabody earlier this month announced it would suspend dividends in the face of low coal demand. Arch has been shifting resources towards metallurgical coal, which is used in steelmaking and seen as less vulnerable to the fuel switch under way in the power sector.

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