FTC Alleges Coal Price Fixing

Star-Tribune energy reporter

Apr 4, 2004 -- Gillette -- Coal giants in the Powder River Basin are under fire for alleged price fixing by choking the flow of coal from the area.

The allegations are incorporated in the details of a lawsuit filed by the U.S. Federal Trade Commission on Thursday.

The lawsuit filed in federal court aims to block Arch Coal Inc.'s proposed acquisition of a competing coal company and makes a sweeping allegation of price collusion among the whole Powder River Basin coal industry.

"Defendants and others, including Kiewit (Mining Group), recognized that consolidation in the SPRB (southern Powder River Basin) has led and will lead to producer restraint and higher SPRB prices," the FTC wrote in its court filing.

"Arch has been the leading proponent of limiting SPRB coal production," the FTC wrote. In addition to Arch, the FTC alleged that Kennecott Energy, Peabody Energy and Triton Coal Co. also took part in collusion of coal production levels with the intent to affect prices.

Officials at Arch's St. Louis, Mo., headquarters did not return a call Friday evening for comment. A spokesman for Kennecott Energy said the company had no comment on the FTC's allegations.

In May, Arch announced a preliminary agreement to buy Triton and its two mines in the Powder River Basin for $364 million. American Electric Power -- and presumably other utilities that buy Powder River Basin coal -- later complained to the FTC that Arch's initial proposal to acquire both of the Triton mines might reduce price competition in the region. The FTC responded by launching a secondary review of the acquisition in August.

Arch had dreamed of creating a super-mine by combining its Black Thunder mine with Triton's neighboring North Rochelle mine south of Wright. To ease concerns of dissipated competition, Arch planned to immediately re-sell Triton's Buckskin mine north of Gillette to Kiewit Mining Acquisition Co.

On Tuesday, the FTC announced its intention to file a lawsuit in federal court seeking an injunction to block Arch's proposed purchase of Triton Coal Co. As proposed, the deal would be illegal and would reduce competition and increase the likelihood of coordinated interaction among the producers of SPRB coal, the FTC said in a press release Tuesday.

"Even if Arch were to acquire only Triton's North Rochelle mine and not its Buckskin mine the acquisition would substantially increase concentration in the SPRB and reduce from four to three the number of producers of 8800 Btu (British thermal heating unit) coal," the FTC said.

To make its case of collusion among Arch and the other companies, the FTC listed several comments that Arch president and CEO Steven Leer had made at trade forums, in trade publications and in press releases.

In papers filed to the court, the FTC alleges Leer made a keynote address at an April 17, 2001, Western Coal Transportation Association meeting and stated that the reason prices had increased for southern Powder River Basin coal was due, in part, to the fact that in the area there were "fewer producers, so greater potential for discipline."

Coal fires about half of all the electrical generation in the United States. Mines in the southern Powder River Basin supply about 30 percent of nation's coal. The basin-wide industry produced 363.4 million tons of coal in 2003, according to a Star-Tribune survey.

On Thursday, attorneys general in six states joined together to file a lawsuit to block Arch's Triton purchase, similarly saying they feared that combining the two key coal producers could result in higher electric utility rates.