TVA, Armstrong Coal gives themselves extra time to work out reopener

The Tennessee Valley Authority and western Kentucky coal producer Armstrong Coal have given each other an extra month, the month of July, to work out a reopener in a long-term contract for Armstrong to supply coal to TVA.

The parent of Armstrong Coal, Armstrong Energy, on July 2 filed with the SEC a copy of a June 21 letter from TVA’s fuels department to Armstrong. The letter said the parties “are currently engaged in reopener negotiations with respect to TVA Contract No. 612-40668 (the ‘Contract’). Under Section 1.0 of the Contract, as amended by Section 1.0 (B) of Supplement No. 7, since the reopener provision has been exercised, the Contract will terminate on December 31, 2012, ‘unless TVA and Contractor have mutually agreed in writing no later than July 1, 2012, to continue this Contract.’ The effective date of this Supplement is June 19, 2012. The parties hereby agree to extend, from July 1, 2012, until August 1, 2012, the negotiation period within which the parties may reach mutual written agreement with respect to the current reopener.”

The June 21 letter doesn’t give any details on the terms of this coal supply contract. The letter was attached as an exhibit to the seventh amended Form S-1 prospectus for Armstrong Energy’s planned IPO.

In a May 30 Form S-1/A filing, Armstrong Energy said it had two multi-year coal supply agreements with TVA. The agreement with TVA that was entered into in 2007, as amended, calls for the delivery of 1 million tons annually in 2011 and 2012, and 2 million tons from 2013 through 2018. The price ranges from $40.57 to $41.68 per ton in 2011 and 2012. The agreement then provides that either party may elect at its sole option to reopen the agreement for negotiations with respect to price and/or other terms as it concerns all coal to be delivered in 2013 and beyond and that TVA has exercised its right to reopen the agreement. If the parties are unable to reach agreement by July 1, 2012, the contract will terminate as of Dec. 31, 2012. The contract also provides for typical quality adjustments. In addition, commencing on July 1, 2011, TVA has the unilateral right to terminate the agreement upon 60 days written notice, in which case TVA is required to pay Armstrong a termination fee equal to 10% of the base price multiplied by the remaining number of tons to be delivered under the agreement. Since this contract has a July 1, 2012, reopener deadline, this is apparently the one referenced in the June 21 TVA letter.

A second agreement with TVA that was entered into in 2008 calls for delivery of between 0.9 million and 1.1 million tons annually from 2009-2013. The price ranges from $56.00 to $58.00 between 2011 and 2013. The agreement then provides that either party may elect at its sole option to reopen the agreement for negotiations with respect to price and/or other terms as it concerns all coal to be delivered in 2012 and 2013. TVA exercised its option under the agreement and the parties reached an agreement to reprice the coal to be delivered in 2012 and 2013 with pricing from $54.25 to $55.88 per ton.

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.