Gulf Power wins final award in coal dispute with Peabody

A federal judge on Jan. 19 officially awarded Gulf Power Co. at least $20.5m in a long-running lawsuit over Gulf Power’s excess costs to procure coal after a force majeure declaration by the Coalsales II LLC unit of Peabody Energy (NYSE:BTU) under a coal-supply contract.

Gulf Power originally sued Coalsales II for breach of a multi-year coal supply agreement (CSA), seeking to recover $77.5m in damages it allegedly incurred after it was forced to purchase substitute coal to make up for deficiencies in the amount of coal Coalsales was obligated to supply under the CSA. Coalsales had trouble delivering some of this coal due to geology problems at the source mine in Illinois. Gulf Power is a unit of Southern Co. (NYSE:SO).

In September 2009, the U.S. District Court for the Northern District of Florida granted Gulf Power’s motion for partial summary judgment on liability. The issue of Gulf Power’s damages was tried in front of the judge without a jury in February 2010. The judge ultimately ruled that Gulf Power failed to prove its damages claim. Gulf Power then filed a motion to alter the judgment, or alternatively for relief from the judgment, which the court granted.

On August 2011, the court conducted an evidentiary hearing on the issue of Gulf Power’s damages for the year 2007 alone. The court found Gulf Power entitled to recover $20.5m in damages from Coalsales There was no mention at the hearing of interest or costs, and the matters inadvertently were left out of the court’s order and judgment. After judgment was entered, however, Gulf Power contacted the clerk’s office requesting that the judgment be modified to include prejudgment interest and taxable costs. Because Gulf Power requested pre-judgment interest and taxable costs in its complaint, the court found Gulf Power entitled to recover these costs as a matter of law and directed Gulf Power to submit a calculation of the amount of interest it claims.

Judge M. Casey Rodgers found in his Jan. 19 order that Gulf Power is entitled to recover against Coalsales: damages in the amount of $20.5m; prejudgment interest in the amount of $6.9m; post-judgment interest to be calculated from Sept. 30, 2011, until the date the judgment is paid at a rate of .10%; and taxable costs.

The parties in November 2011 separately took this case to the U.S. Eleventh Circuit Court of Appeals, with Judge Rodgers’ Jan. 19 decision now helping to clear the way for full argument of those appeals, likely within a combined docket.

“On June 22, 2006, Gulf Power Company (Gulf Power) filed a breach of contract lawsuit against a Company subsidiary in the U.S. District Court, Northern District of Florida, contesting the force majeure declaration by the Company’s subsidiary under a coal supply agreement with Gulf Power and seeking damages for alleged past and future tonnage shortfalls of nearly five million tons under the agreement, which expired on December 31, 2007,” Peabody said about this case in a November 2011 Form 10-Q filing at the SEC.

Peabody added, after describing the long history of the lawsuit: “Based on the company’s evaluation of information currently available concerning the issues and their potential impact, the company believes it will be successful in the liability appeals process and, therefore, no liability has been recorded at this time.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.