Fed. Trade Comm'n v. Peabody Energy Corp.

• Decision Date: 29 September 2020
• Docket Number: Case No. 4:20-cv-00317-SEP
• Citation: Fed. Trade Comm'n v. Peabody Energy Corp., 492 F.Supp.3d 865 (E.D. Mo. 2020)
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. PEABODY ENERGY CORPORATION and Arch Resources, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

492 F.Supp.3d 865

FEDERAL TRADE COMMISSION, Plaintiff,

v.PEABODY ENERGY CORPORATION and Arch Resources, Inc., Defendants.

Case No. 4:20-cv-00317-SEP

United States District Court, E.D. Missouri, Eastern Division.

Signed September 29, 2020

Filed October 5, 2020

Amy E. Dobrzynski, Daniel Matheson, Federal Trade Commision, Alicia Burns-Wright, Cecelia Waldeck, Christopher Caputo, Elizabeth Arens, Ernest Eric Elmore, Jeanine Balbach, Jonathan Lasken, Joshua Goodman, Maria Cirincione, Michael Anthony Franchak, Philip Kehl, Sean Hughto, Stephen Santulli, Taylor Alexander, Federal Trade Commission, Washington, DC, for Plaintiff.

Corey Roush, Pro Hac Vice, Gorav Jindal, Haidee Schwartz, J. Matthew Schmitten, Akin and Gump, Edward Hassi, Leah S. Martin, DeBevoise and Plimpton LLP, Washington, DC, Matthew T. Schelp, Michael Charles Martinich-Sauter, Catherine L. Hanaway, Husch Blackwell LLP, St. Louis, MO, Cristina R. Thrasher, Akin and Gump, Johan Robert Abraham, Michael Schaper, Tristan Myles Ellis, DeBevoise and Plimpton LLP, New York, NY, for Defendant Peabody Energy Corporation.

Stephen Weissman, Andrew Thomas George, Elisa Beneze, Jarad Scot Daniels, Matthew Adler, Michael J. Perry, Steven Benjamin Pet, William Connor Lavery, Baker Botts LLP, Washington, DC, for Defendant Arch Coal, Inc.

MEMORANDUM OPINION

SARAH E. PITLYK, UNITED STATES DISTRICT JUDGE

Flipping a light switch is the culmination of a long and convoluted process. The electricity needed to turn on that light—indeed, the electricity needed for any purpose, be it residential, commercial, or industrial—is generated at power plants owned by investor- or publicly-owned utilities and cooperatives, independent power producers, or the government. Joint Stipulation of Uncontested Facts ("JSUF") (Doc. [301-1]) ¶ 4. Each power plant consists of one or more electricity generating units ("EGUs"). Id. ¶ 5. Each EGU uses one of a wide range of generating technologies to transform the energy in a specific fuel—e.g., uranium, coal, oil, natural gas, sunshine, wind, water—into electricity. Id. ¶ 6. The typical user of electrical power is indifferent to the method used to generate that power; to most of us, a megawatt is a megawatt is a megawatt. Id. ¶ 8. But to energy companies, utilities, policymakers, regulators, and investors (to name just a few), the process by which certain fuels are selected—or not—for use in electricity generation is a matter of momentous consequence. This case is about that process.

One of the most important fuels for electricity generation is thermal coal. Though it has steadily ceded ground to natural gas and renewables over the past twenty years, coal still provides 20 percent of our nation's electricity, and it is projected to remain an important fuel source for decades to come. Defendants Peabody Energy Company ("Peabody") and Arch Resources, Inc., ("Arch") are the two largest coal producers in the United States. Peabody Energy Corp.’s Answer & Affirmative Defenses (Doc. [54]) ("Peabody Answer") ¶¶ 15-16. Peabody and Arch propose to mitigate the effects of the coal industry's overall decline on their employees and investors by combining some of their thermal coal operations in a joint venture (the "JV"). JSUF ¶ 30. Defendants announced their intention to form the JV on June 19, 2019. Id.

Eight months later, three days before the JV was to be consummated, the Federal Trade Commission ("FTC") filed suit in this Court seeking an immediate injunction under Section 13(b) of the Federal Trade Commission Act to prevent the proposed JV from moving forward until the FTC could conduct an administrative hearing to determine whether it would violate Section 7 of the Clayton Act. Defendants stipulated to a temporary restraining order pending this Court's hearing on the FTC's Motion for Preliminary Injunction (Doc. [137]). After two COVID-19-related delays, that hearing took place in mid-July 2020, less than 5 months after the FTC's initial filing. In the interim, the parties worked furiously to exchange written discovery, take dozens of depositions, and prepare hundreds of pages of briefing and thousands of exhibits—all within the extraordinary constraints imposed by a global pandemic.

In considering the Motion, the Court has been the beneficiary of those herculean efforts, as both sides ably distilled their complex arguments into coherent, comprehensible presentations over the course of a nine-day evidentiary hearing, followed by proposed findings of fact and conclusions of law and closing arguments. Having carefully considered all of those submissions, the Court finds that the FTC has met its burden under Section 13(b) of the Federal Trade Commission Act for a preliminary injunction; accordingly, its Motion for Preliminary Injunction (Doc. [137]) is granted.

BACKGROUND

I. Factual Background

A. SPRB coal mining and transportation

The case is principally concerned with one of the several fuels that can be used for energy production: thermal coal. JSUF ¶¶ 13-14. It is even more narrowly focused, in fact, on thermal coal that is mined in one specific geographical region, the Southern Powder River Basin ("SPRB"), located in northeastern Wyoming, near the town of Gillette. Id. ¶¶ 16-17.

Unlike some mines in other parts of the country, SPRB mines are surface mines, meaning they are not underground. Tr. Vol. 2A (Jones) 5:20-21. Mining SPRB coal therefore requires removing "overburden," the material covering the coal. Id. at 5:22-23. The number of cubic yards of dirt that must be removed to access one ton of coal is the "strip ratio." Tr. Vol. 5A (Lang) 110:13-17. As an example, if a mine has a strip ratio of 4, that means that, on average, 4 cubic yards of dirt must be removed to access one ton of coal. Id. at 110:17-18. An SPRB coal mine's cost structure is primarily a function of the how difficult it is to access the coal, which is most succinctly captured by a mine's strip ratio. Tr. Vol. 5A (Kellow) at 64:22-65:2.

Coal companies design mines to minimize the cost of extracting coal, which involves optimizing the use of equipment used to remove overburden. There are three ways to move overburden. Tr. Vol. 5A (Lang) at 109:1-3. The most cost-effective method is explosives, whereby mining companies blast the overburden over the top of the pit and land it in another pit, revealing the material below what was blasted. Id. at 109:3-9. These can be massive explosions. Paul Lang, Arch's CEO and himself an experienced coal miner, stated that he has detonated as much as approximately 8.5 million pounds of explosives at a time. Id.

The second cheapest way to move large volumes of material is a dragline. Id. at 109:9-11. A dragline is an order of magnitude more expensive than explosives, but it is still very efficient. Id. Draglines are some of the largest earth-moving equipment in the world, with buckets that can scoop as much as 165 cubic yards at a time. Id. at 108:18-21. However, because of their size and the way they function, there are limitations on what they can do and where they can do it. Id. at 109:13-18.

The third way to move material is truck shovels, which are two to three times more expensive than a dragline. Id. at 109:19-22. When a company designs a coal mine, it optimizes the mine plan for the less expensive technologies, explosives and draglines. Id. at 109:23-25. As coal is extracted from a mine, the cost of extracting the marginal ton of coal increases as explosives and draglines become less feasible, and expensive shovel trucks are eventually needed for an increasing share of overburden removal. Id. at 110:24-111:17.

Once accessed, the coal is trucked out of the pit in six-foot chunks and run through a crusher, which breaks it up into two-inch-long pieces that customers can put into their boilers. Tr. Vol. 5B (Lang) 11:24-12:7. The crushed coal is loaded onto conveyor belts, which transport it to loadouts, where it is loaded onto train cars. Id. at 11:12-24.

Coal customers buy and take possession of the coal when it is loaded onto railcars in the SPRB. Tr. Vol. 1B (Meyer) 22:24-25. Hence, the price paid for the coal is sometimes called the "mine-mouth" price. [Redacted] That commodity price is only a fraction of the coal's total delivered cost because customers also pay to transport the coal from the SPRB to wherever it will be used. Id. at 23:1-12. The transportation costs are substantial, sometimes up to more than half of the total delivered cost of the SPRB coal. See, e.g. , id.

All SPRB mines are along a rail line. The portion of the rail line south of the town of Gillette, Wyoming, is referred to as the "joint line" because it is owned by both the Burlington Northern Santa Fe ("BNSF") and Union Pacific railroads. [Redacted] The joint line is quadruple track through the SPRB coal mines, making it an efficient means of transporting coal out of the SPRB. Id. Mines north of Gillette are generally on a BNSF line only, which affects available prices and destinations for coal from that area. Id. ; Tr. Vol. 3B (Sandlin) 81:19-82:1 (mines not along the joint line are "a bit more limited" in what power plants they can serve). The Buckskin, Rawhide, Eagle Butte, Dry Fork, and Wyodak mines are all north of Gillette and are served only by the BNSF line, while the Caballo, Belle Ayr, Cordero Rojo, Coal Creek, Black Thunder, NARM, and Antelope mines are all south of Gillette and served by the joint line. PX8001 (Hill Report) Fig. 2.¹ The lack of rail competition for mines north of the joint line has led to higher prices for transportation for coal from these mines, making such coal somewhat less attractive relative to mines served by the joint line. See, e.g. , [Redacted] does not solicit SPRB coal suppliers with only mines north of the joint line because they are "not competitive from a transportation standpoint"); [Redacted] only solicits SPRB coal suppliers with mines on the joint line); Tr. Vol. 5B (Stuchal) 93:9-12 (NPPD purchases SPRB coal from all producers on...