Duke asserts $13.8m damage claim against Alpha

Duke Energy Industrial Sales LLC told a federal court that, now that a unit of Alpha Natural Resources (NYSE: ANR) has been found to have improperly terminated an agreement to sell coal to Duke, that the Alpha unit is now liable for damages of $13.8m.

A federal judge on July 18 found that the Duke Energy Industrial Sales unit of Duke Energy (NYSE: DUK) did have a binding coal purchase deal with Massey Energy, with that coal to be re-sold to a Celanese Acetate LLC industrial plant in Virginia. The decision was from Judge Irene Berger, sitting in the U.S. District Court for the Southern District of West Virginia.

Duke Energy Industrial Sales buys coal on the open market and had been re-selling it in this case to the Celanese plant. The judge was ruling on summary judgment motions from each side and ruled for the motion from Duke and against the one from Massey Coal Sales, which since June 2011 has been a re-named part of Alpha Natural Resources. Alpha acquired this lawsuit when it bought Massey Energy.

In February 2011, Duke instituted this action alleging claims for breach of contract, promissory estoppel, and misrepresentation arising out of an alleged coal purchase agreement with Massey. Duke contended it had a contract with Massey to supply coal at a fixed price of $54/ton for calendar year 2008, but that Massey intentionally breached that agreement when coal prices began rising. The coal was intended to be used by Celanese Acetate to operate its power generation plant in Narrows, Va. Celanese is not a party to the suit. Massey had supplied coal in some manner to the Celanese plant for over two decades.

The judge ruled on July 18 that despite the fact the two parties had signed no firm contract for the disputed coal, that months of email and other communications between the parties showing that a deal was in hand was enough proof that a legally-binding agreement had been reached.

In an Aug. 15 brief, Duke said: “The Court has ruled that the only remaining issue in this case is the amount of damages to which Plaintiffs are entitled. The 2005 Coal Supply Agreement (‘2005 Agreement’), as extended, controls this issue. It provides a specific, simple formula for calculating Plaintiffs’ damages. The figures to be used in that formula are clear and undisputed. There are no genuine issues of material fact remaining for jury determination. This Court should grant Plaintiffs’ Motion for Summary Judgment on Damages and enter judgment for Plaintiffs in the amount of $13,825,059.09, plus prejudgment interest.”

Duke noted that the “Contract Price” was $54/ton. Within two weeks after Massey’s breach, Duke purchased 364,234 tons of replacement coal at a weighted average “Replacement Price” of $91.96/ton. The 364,234 tons of replacement coal fall squarely within the “Quantity of the Coal” required to be delivered by Massey in 2008, which was a range of 350,000-410,000 tons, Duke added. “The difference between the Contract Price of $54/ton and the Replacement Price of $91.96/ton is $37.96,” it argued. “Accordingly, Plaintiffs’ total ‘cover’ damages under Paragraph 16(a) are $13,825,059.09.”

This case had been set for a trial start on Aug. 20, but the judge on Aug. 15 shelved the trial until the summary judgment motion issues on damages are resolved. Incidentally, Alpha/Massey’s Aug. 14 cross motion for summary judgment was filed under seal. The judge had issued no ruling on these competing motions as of Aug. 24.

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.