Also, try adding .to_sql to the end of your original AR chain, and see if Arel is actually arriving at the same exact query as your hand-written one. (To get rid of any spurious backslashing that might make that less of a copy-paste able query, prepend it with a puts.)
# in a rails console
puts User.select("coalesce(email, '00000@example.com') as user_email").group(:user_email).to_sql
Then try running that exact query in your database tool of choice.
pry(main)> puts User.select("coalesce(email, '00000@example.com') as user_email").group(:user_email).to_sql
SELECT coalesce(email, '00000@example.com') as user_email FROM "users" GROUP BY "user_email"