Federal regulators filed a lawsuit Wednesday seeking to kill an alliance between America's two largest coal mining companies.
The Federal Trade Commission's decision, supported by two Republicans appointed by President Donald Trump, deals a blow to the turnaround efforts of Peabody Energy and Arch Coal from their 2016 bankruptcy filings. It also poses another setback for the nation's battered coal industry.
In a four-to-one vote, the FTC found that a joint venture would "eliminate competition" in the Powder River Basin, a major-coal producing region in northeastern Wyoming.
"That loss of competition would likely raise prices to power-generating utilities that provide electricity to millions of Americans," Ian Conner, director of the FTC's bureau of competition, said in a statement.
The FTC is asking a judge for a temporary restraining order to halt the joint venture ahead of an administrative trial in August. The deal, announced last summer, called for Peabody and Arch Coal to combine their Powder River Basin and Colorado assets, which include seven different mines.
Peabody Energy and Arch Coal vowed to fight the lawsuit in court, arguing that the agency didn't account for the hefty competition coal faces from dirt-cheap natural gas and booming renewable energy.
Coal stocks tumble on FTC action
Peabody CEO Glenn Kellow said in a statement that the companies provided "tremendous amounts of evidence" to the FTC during an "extensive review" that demonstrated that coal "faces intense competition from natural gas and other alternative fuels."
"We believe that the commission has reached an incorrect decision that should be rapidly remedied within the court system," Kellow said.
The news caught Wall Street off guard. Peabody's stock plunged 13%, while Arch Coal retreated 8%.
"The prevailing view in the market was the FTC wouldn't challenge" the deal, said Josh Price, senior energy analyst at Height Capital Markets. He pointed to coal's shrinking market share and the Trump administration's support for the industry.
The decision was backed by two out of the three Republican commissioners appointed by Trump, who promised during the 2016 presidential campaign to revive America's coal industry. Republican FTC Commissioner Christine Wilson was the lone dissenter.
The White House declined to comment on the FTC decision.
Coal country is still hurting
Trump's election raised hopes of a turnaround in the coal industry. The administration has slashed environmental regulations and even installed a former coal lobbyist to lead the EPA.
Yet coal continues to lose ground because of economics. The abundance of cheap natural gas, along with the rise of affordable solar and wind power, has overwhelmed the deregulation efforts out of Washington. In fact, the United States could get more electricity from renewable energy than coal in 2021.
Coal countries continues to reel financially.
In October, Murray Energy, the nation's largest private coal miner, filed for bankruptcy protection. Robert Murray, the so-called king of the coal industry, was ousted as CEO.
St. Louis-based Peabody Energy filed for bankruptcy in April 2016 and nearly went out of business. After easing its debt load, Peabody emerged from bankruptcy a year later and began trading on the New York Stock Exchange.
Yet both Peabody and Arch have struggled to cope with the shifts in the energy industry. Arch Coal has lost half its value since peaking in 2018. Peabody has plunged by 80% over the same time span.
Against that backdrop, the coal companies have decided to fight the FTC decision.
Price, the Height Capital analyst, said that eventually a court could overrule the agency. That's what happened in 2005 when the FTC unsuccessfully sued to try to block Arch Coal's takeover of a Wyoming mine owned by Triton.
Price said that the key to the case will be whether a court today decides to focus more on the competitive pressure on coal or the impact on consumers