Consumer News Release
For immediate release - Thursday, April 1, 2004.
[See end of release for update as of September 2004.]
Contact Bob Brammer - 515-281-6699.
Iowa Aims to Block Coal-Company Merger
Six States argue that merger could result in higher prices for crucial Wyoming coal -- and higher electricity rates for customers.
Iowa Attorney General Tom Miller and five other state attorneys general filed a lawsuit in Washington today to block a proposed merger between the third and fourth leading producers of coal from Wyoming's Southern Powder River Basin -- by far the primary source of coal used to generate electricity in Iowa.
"We allege that Arch Coal Inc.'s proposed purchase of Triton Coal Co. likely would significantly reduce market competition for providers of Southern Powder River Basin coal, and result in higher coal prices," Miller said.
"That area provides nearly 98 per cent of the coal used by public utilities to generate electricity for Iowa homes and businesses," he said. "Huge trains full of this coal roll into Iowa every single day. Any significant price increase for Powder River Basin coal would have a very harmful effect on Iowa consumers and businesses, and the state economy."
The lawsuit was filed today in Federal District Court in Washington, D.C., by Iowa, Illinois, Kansas, Missouri, Arkansas, and Texas. The complaint seeks injunctions against Arch Coal Inc. of St. Louis, MO; Triton Coal of Gillette, WY; and Triton's parent company, New Vulcan Coal Holdings, of Fairview Heights, IL. Missouri is leading the states' lawsuit. The six states are working very closely with the Federal Trade Commission, which simultaneously filed a separate lawsuit to block the proposed purchase of Triton Coal by Arch Coal, Inc.
"We allege the purchase is illegal under federal law," Miller said. The states said the merger of Arch Coal and Triton would violate the Clayton Act, a federal law that prohibits anti-competitive practices, by eliminating direct competition, increasing the likelihood that unilateral market power would be exercised, and decreasing the likelihood that producers would develop additional mines.
The states said the acquisition, if allowed to go through, would result in the top three competitors controlling a very high percentage of Southern Powder River coal (86% of overall coal production in 2003, and virtually all of the Basin's better quality high-Btu coal.) Peabody, Kennecott and Arch already are the region's largest coal producers.
"The merger would reduce competition, increase the likelihood of coordinated interaction among the remaining coal producers, and reduce the incentive to offer lower prices or expand coal production," Miller said.
"And there is no easy alternative to our use of Southern Powder River coal," he added. "Most coal-fired plants in Iowa are designed or adapted for low-sulfur dioxide content coal from Wyoming and can't burn high-sulfur dioxide coal from other regions without extensive and expensive reconfiguration."
One-third of all coal mined in the United States comes from the Southern Powder River Basin located in northeast Wyoming, and the six states filing today's lawsuit use nearly half of all the coal from that region burned to generate electricity nationwide. Southern Powder River coal has a strong economic advantage for several reasons, including its low sulfur content, which makes it one of the few coals to comply with the 1990 Clean Air Act, its moderately high energy content, and its exceptionally low mining costs.
The states said the structure of the Southern Powder River Basin coal market -- including the small number of competitors, readily-available market information, and homogeneity of the product -- make coordination among competitors more likely. They noted that Arch Coal has publicly supported limiting coal production from the region and has endorsed reducing output in order to increase pricing.
"We are asking the Court to block Arch's purchase of Triton as anti-competitive and a violation of antitrust law," Miller said. "We aim to protect our consumers from higher energy prices that likely would result from less competition in this crucial source of coal used in our states."
UPDATE -- September 2004:
On August 16, 2004, the Federal District Court refused to block the merger, as the States and FTC had sought. On August 20, 2004, the Circuit Court of Appeals declined to stay the merger pending appeal, as the States and FTC had sought. In September, the FTC and the States dismissed their appeals.
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