Market Definition in the Arch/Peabody Coal Joint Venture

The Federal Trade Commission (“FTC”) recently filed an administrative complaint, and has sought a preliminary injunction, to block the proposed joint venture between Arch Coal, Inc. (“Arch”) and Peabody Energy Corporation (“Peabody”). Arch and Peabody are seeking to combine their coal mining operations in the Southern Powder River Basin (“SPRB”) of northeastern Wyoming. The FTC alleges that Arch and Peabody are the two largest coal-mining companies in the United States, and that the proposed joint venture would eliminate competition for thermal coal in the SPRB.

Market definition will be a fundamental point of contention between the FTC and the joint venture parties. Specifically, this case raises issues of how traditional inputs (thermal coal) compete with new products and technology — such as natural gas made available through hydraulic fracturing (“fracking”) and renewable energy sources, including wind and solar.

The joint venture parties, Arch and Peabody, argue that natural gas from fracking and renewable power from solar and wind generation are displacing the use of thermal coal and that thermal coal production in the SPRB has declined by over 50 percent since 2008. They claim that the FTC, by considering and defining a relevant market that includes only the sale of SPRB coal, is ignoring the competitive dynamics of energy markets in the United States.

However, the FTC does consider the decline in demand for SPRB coal in its Complaint. The FTC states: “While the total demand for SPRB coal in the economy has been falling over time, industry regulators such as EIA, and SPRB coal producers (including Peabody and Arch), expect that SPRB coal plants will continue to purchase and burn many millions of tons of SPRB coal for many years to come.” The FTC further argues that utilities that own plants that rely on SPRB coal, but also can generate electricity using power from plants that can use alternative fuel sources, would not reduce their purchases of SPRB coal by enough to defeat a small, but significant increase in the price of SPRB coal.

The Courts have recognized the dynamic effect that the emergence of new technologies can have on industry competition (e.g., distributors of only on-demand content such as Hulu and Netflix in the AT&T/Time Warner litigation). This Complaint suggests that the antitrust agencies will continue to investigate and pursue mergers and joint ventures between firms in traditional industries that are losing customers or cutting production due to new products and technologies.

EI Vice President Stephanie M. Mirrow has worked on numerous matters involving market definition, including joint ventures and mergers and acquisitions.