Peabody, Gulf Power square off at appeals court in coal dispute

The Coalsales LLC unit of Peabody Energy (NYSE: BTU) and Gulf Power are in the opening stages of arguments at the U.S. Eleventh Circuit Court of Appeals in a long-running legal dispute that each side partially won at the lower court level.

“The issues in this $78 million dollar contract dispute involve (1) whether Coalsales had a contractual obligation to provide coal after the mine—which was designated as the primary source of coal—was closed due to safety reasons, (2) whether Coalsales is liable for damages where the district court found Appellee/Cross-Appellant Gulf Power Company (‘GPC’) purposely and unreasonably implemented a scheme to benefit from Coalsales’ alleged breach by purchasing better coal, and (3) whether the court erred in sua sponte substantively awarding almost $7 million in prejudgment interest in an amended final judgment—following GPC’s ex parte telephone call to the court—when no motion to alter or amend was timely filed,” said Coalsales in a March 29 brief filed at the appeals court. “Coalsales respectfully submits this Court’s decisional process will be aided by oral argument in addressing these issues.”

The dispute, which was pending since June 2006 at the U.S. District Court for the Northern District of Florida, has to do with whether Gulf Power could collect damages from Coalsales for its extra costs to buy replacement coal when Coalsales declared force majeure due to geology problems at the Galatia coal mining complex in Illinois. Ultimately, Gulf Power didn’t get all of the damages it wanted, but the court did award Gulf Power a total of $20.5m in damages, plus nearly $6.9m in interest, for extra costs incurred in one contract year, which was 2007. Georgia Power had originally sought to recover $77.5m in damages from Coalsales for the years 2004 through 2007.

The center of the dispute is a May 1994 contract under which Coalsales agreed to provide Gulf Power with 1.9 million tons of coal annually until Dec. 31, 2007. The case at the appeals court was opened in November 2011.

Coalsales, by the way, is also known as Coalsales II LLC and was formerly known as Peabody Coalsales LLC. Gulf Power is a unit of Southern Co. (NYSE: SO).

On April 11, the appeals court granted Gulf Power a 30-day deadline extension, to May 30, to file its first brief in this case.

Peabody outlined the history of this litigation in its Feb. 27 annual Form 10-K report. “On June 22, 2006, [Gulf Power] filed a breach of contract lawsuit against a Company subsidiary in [district court], 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. On June 30, 2009, the court granted Gulf Power’s motion for partial summary judgment on liability and denied the company subsidiary’s motion for summary judgment. On September 30, 2010, the court entered its order on damages, awarding Gulf Power zero dollars in damages and the company subsidiary its costs to defend the lawsuit. On November 1, 2010, Gulf Power filed a motion to alter or amend the judgment, contesting the trial court’s damages order, to which the company subsidiary objected. The court entered an order on July 29, 2011 that affirmed its September 30, 2010 decision in all respects except for 2007 cover coal purchases and granted in part Gulf Power’s motion to alter judgment with respect to 2007 cover coal purchases. On September 30, 2011, the court entered an order awarding Gulf Power damages in the the amount of $20.5 million for its 2007 cover coal purchases. On January 19, 2012, the court entered its order awarding Gulf Power prejudgment interest in the amount of $6.9 million plus post-judgment interest.”

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.