Alliance Resource Partners LP (NASDAQ: ARLP) on July 5 filed with the SEC a heavily-redacted coal contract “confirmation” that covers potentially the full requirements for Seminole Electric Cooperative’s Seminole power plant in Florida for the six-year period of January 2013-December 2018.
“Buyer’s projected coal requirements for the Seminole Generating Station during the term will range between a maximum of 4.0 million tons per Contract Year and a minimum of 3.0 million tons per Contract Year,” said the confirmation, dated March 16. “Seller agrees to sell and deliver to Buyer, and Buyer agrees to Purchase and accept from Seller, an annual base load quantity of [redacted] tons and annual additional quantity requirements (‘AQR’) that will range between [redacted] and [redacted] tons, all as determined by Buyer’s annual forecasting (Section 4.1 of the Base Contract) and the resulting Contract Quantity as determined by Buyer.”
The confirmation added: “Except as otherwise provided in Section 8.6, Buyer shall not purchase coal from other sources in any Contract Year unless Buyer has committed to purchase at least 4,000,000 tons of Coal from Seller in such Contract Year. In the event that Buyer’s coal requirements for the Seminole Generating Station exceed the Contract Quantity as specified in the final nomination for a Nomination Period and such final nomination did not exceed 4,000,000 tons of Coal, Buyer shall promptly notify Seller and Seller shall have the option, but not the obligation, of providing such additional quantities at the current AQR Price. If Seller elects to not provide such additional quantities, then Buyer shall have the right to purchase such quantities from other sources. Buyer expressly reserves the right to purchase coal from other sources in any Contract Year, as long as Buyer has committed to purchase at least 4,000,000 tons of Coal from Seller in such Contract Year.”
Since the confirmation, signed by Alliance’s Alliance Coal LLC subsidiary, said that the full need at the Seminole plant is 4 million tons in any given year, and the power generator has to potentially buy at least 4 million yearly tons from Alliance, this looks to be basically a full requirements contract, which is an unusual agreement in the modern coal business.
The sources for this coal include Alliance’s Pattiki mine in Illinois and the Dotiki, Warrior and Elk Creek mining opertations in West Kentucky. All AQR coal has to be sourced from the West Kentucky mines. During the parties’ annual forecasting process, Alliance may request written consent from Seminole Electric, which consent shall not be unreasonably withheld, to increase the maximum tons of Illinois base load coal.
Alliance can request other mines or origins be added. If buyer’s rail transportation arrangements do not include the requested origins, then Seminole Electric can seek CSX Transportation’s approval to add those origins. If CSXT requires any additional freight rate differential or transportation charges for such new origin, then seller is responsible for those charges. Such sources may be located in Illinois or West Kentucky or any other state, such as Indiana; provided, however, that such sources must be served by or directly accessible to CSXT.
Notable is that Alliance has one existing mine in Indiana (Gibson County, accessible via CSXT) and another in development (Gibson South).
The coal quality specs are redacted from the confirmation.
Alliance on May 9 had filed with the SEC a copy of the basic contract language that lacked the specific (though redacted) detail of the full confirmation filed on July 5.
This deal doesn’t apparently lose much business for other coal suppliers. U.S. Energy Information Administration data shows that all the coal going to Seminole in January was from Alliance mines in West Kentucky and Illinois (Pattiki).
“Consisting of two 650 megawatt coal-fired generating units, Seminole Generating Station began commercial operation in 1984,” said the Seminole Electric website. A brochure on the website gives the fully-scrubbed plant’s washed coal specs as 8.5% ash, 3% sulfur, delivered primarily from mines in western Kentucky and southern Illinois at 11,700 Btu/lb. “The Seminole Generating Station is permitted to burn up to 30% of its fuel as petroleum coke (petcoke),” the brochure added. “Actual amounts burned depend on the price and availability of petcoke, and plant conditions.”