Big Rivers Electric reveals details of Oxford coal contract dispute

Oxford Mining Co.-Kentucky LLC filed suit April 27 in a Kentucky court against Big Rivers Electric, and Big Rivers Electric has since counterclaimed, in a dispute over whether Oxford breached the coal specs in a 2007 contract.

Big Rivers Electric, in a Sept. 11 filing with the Kentucky Public Service Commission in its twice-yearly fuel cost review case, said this is its only pending litigation with a coal supplier. Oxford Resource Partners (NYSE: OXF), the parent of Oxford Mining, had indicated earlier this year that it had lost an 800,000-tons-per-year contract with Big Rivers. Oxford has since cut back its western Kentucky mining operations due to slack coal markets.

The contract involved in the litigation was executed in October 2007 by Phoenix Coal, an Oxford predecessor, and assumed by Big Rivers in July 2009. After Big Rivers assumed the contract, Big Rivers and Oxford entered into an amended and restated contract effective as of July 1, 2010.

Oxford filed suit against Big Rivers alleging breach of contract in the Ohio County Circuit Court, with a copy of that lawsuit attached to the Sept. 11 filing. A copy of the amended coal contract, and various letters between the parties, are also attached to the Sept. 11 filing. Also attached is a copy of an April 2 coal solicitation by Big Rivers for apparent replacement coal. Big Rivers has counterclaimed, alleging Oxford breached the contract.

“The issues are whether Rig Rivers and/or Oxford breached the contract, and if so, the damages that should be awarded Oxford and/or Big Rivers,” the utility said in the report to the commission. “Big Rivers denies that it breached the contract. For damages, Oxford is claiming lost profits in an as yet undetermined amount; $640,869.21 in the form of employee severance payments and health insurance benefits; losses associated with the disposal of assets and equipment in an as yet undetermined amount; $1,629,235.00 in the form of accelerated reclamation costs; and (alternatively) an as yet undetermined amount representing the differential between the market price and the contract price. Big Rivers is claiming additional maintenance costs, additional trucking expense, additional fuel purchases, and costs, expenses and damages in obtaining Oxford’s assurances, in an amount in excess of the minimum dollar amount necessary to establish the jurisdiction of the Ohio Circuit Court, Ohio County, Kentucky.”

Oxford said when contract price jumped, as intended, Big Rivers balked

In its lawsuit, Oxford said it worked out that 2010 contract revision, at relatively low coal prices, to secure a stream of revenue for its western Kentucky operations. “Throughout 2010 and 2011, Big Rivers benefitted from the low prices (relative to the market) provided by the Amended [coal supply agreement (CSA)]. However, the market price of coal has diminished since late 2011 while the agreed-upon pricing under the Amended CSA substantially increased at the outset of 2012, with the result that the 2012 pricing was above the market price of coal.”

Also starting in 2012, Big Rivers was required under the Amended CSA to take on responsibility for reimbursing mining operation cost increases for diesel fuel, equipment and explosives, the lawsuit added.

Over the history of that coal contract, the coal supplier often fell short of contract specs, with Big Rivers getting compensation for that with compensating price adjustments. But Big Rivers never rejected or threatened to reject the coal, the lawsuit added. Then, at the time in 2012 when Oxford had completed the delivery of carryover coal tonnages at the lower pricing applicable to 2011, the coal pricing under the Amended CSA increased significantly.

“That was, of course, the bargain that Big Rivers and Oxford struck when entering into the Amended CSA,” the Oxford lawsuit said. “In 2012, however, Big Rivers did not want to live by that bargain. As a consequence, Rig Rivers determined to source its coal supply needs covered by the Amended CSA either on a reduced pricing basis extracted from Oxford or elsewhere for less money, despite its contractual obligations to Oxford. At that time, Big Rivers began to make complaints about coal quality, and for the first time threatened to reject Oxford’s coal, as a pretext to extract from Oxford a reduction in the pricing under the Amended CSA or to set up Oxford for a termination enabling Big Rivers to seek coal elsewhere at lower pricing. The strategy of Big Rivers becomes quite transparent with hindsight: it was building a contrived record so that it could claim it had the right to terminate the Amended CSA if Oxford refused to reduce the pricing under the Amended CSA.”

On multiple occasions, Oxford said it exercised its contractual right to request the consent of Big Rivers to the supply of substitute coal by Oxford, which would have alleviated all of the quality concerns raised by Big Rivers absent a good faith basis. “Despite its contractual obligation to not unreasonably withhold such consent, Big Rivers simply ignored Oxford’s request each and every time,” the lawsuit said.

Under the Amended CSA, Oxford agreed to supply and Rig Rivers agreed to purchase various tonnages of coal in 2010 and 2011, and a minimum of 800,000 tons of coal in 2012 and each calendar year thereafter through 2015. The Amended CSA also had an option for Big Rivers to purchase up to 200,000 extra tons of coal each calendar year from 2012 through 2015. Prices under the Amended CSA were fixed in advance, varied with quality, but increased each year from 2012 through 2015.

Big Rivers denies charges, says Oxford failed on coal specs

Attached to the Sept. 11 filing at the commission was Big Rivers’ point-by-point denial filed with the court of the lawsuit claims and its answering counterclaim. At one point, Big Rivers wrote: “If Big Rivers breached the Amended CSA, which Big Rivers denies, the prior breach of the Amended CSA by Oxford, including, but not limited to, Oxford’s breach of the implied covenant of good faith and fair dealing, bars its right to recover in this action.”

The Big Rivers answer also said: “Following the February 15, 2012 suspension of coal deliveries pursuant to the Amended CSA, Oxford knew that it was obligated to provide reasonable assurances of performance to Big Rivers. Oxford also knew that it was obligated to furnish assurances which stated the true facts concerning how Oxford planned to deliver coal in the future which met or exceeded the Guaranteed Monthly Weighted Averages and exceeded the Rejection Limits. To induce Big Rivers to reinstate deliveries of coal pursuant to the Amended CSA, Oxford made false representations to, and concealed material facts from, Big Rivers on February 15, 2013, and again on February 20, 2012, with the expectation that Big Rivers would act upon such false representations.”

The Big Rivers answer continued: “When Oxford made the false representations and concealed the material facts it had knowledge of the actual facts. In good faith, Big Rivers relied upon the false representations of Oxford and changed its position to its detriment and its prejudice by reinstating deliveries of coal. Big Rivers would not have reinstated deliveries of coal had it known the true facts. As a result of its false representations, Oxford is estopped from asserting breach of contract claims against Big Rivers in this action.”

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.