Arch Coal pays $15.6m to FirstEnergy in coal contract dispute

FirstEnergy (NYSE: FE) reported in its Aug. 6 Form 10-Q filing that there was a recent court decision in the long-running coal contract dispute with certain affiliates of International Coal Group, which were taken over in 2011 by Arch Coal (NYSE: ACI).

In December 2006, Allegheny Energy Supply and Monongahela Power, now subsidiaries of FirstEnergy, filed a complaint in the Court of Common Pleas of Allegheny County, Pa., against ICG, Anker West Virginia and Anker Coal. Anker WV entered into a long term Coal Sales Agreement with AE Supply and MP for the supply of coal to the Harrison power plant in northern West Virginia from a nearby deep mine. But then ICG began missing deliveries due to force majeure geology problems at the mine.

Prior to the time of trial, ICG was dismissed as a defendant by the court, which issue can be the subject of a future appeal. A non-jury trial was held in 2011. At trial, AE Supply and MP presented evidence that they have incurred in excess of $80m in damages for replacement coal purchased through the end of 2010 and will incur additional damages in excess of $150m for future shortfalls. Defendants primarily claim that their performance was excused under a force majeure clause in the coal sales agreement and presented evidence at trial that they will continue to not provide the contracted yearly tonnage amounts.

In May 2011, the court entered a verdict in favor of AE Supply and MP for $104m ($90m in future damages and $14m for replacement coal and interest). In August 2011, the Allegheny County Court denied all motions for post-trial relief and the May 2011 verdict became final. In August 2011, the defendants posted bond and filed a notice of appeal with the Superior Court. In August 2012, the Superior Court affirmed the $14m past damages award but vacated the $90m future damages award.

“While the Superior Court found that the defendants still owed future damages, it remanded the calculation of those damages back to the trial court,” the Form 10-Q said. “The specific amount of those future damages is not known at this time, but they are expected to be calculated at a market price of coal that is significantly lower than the price used by the trial court. On August 27, 2012, AE Supply and MP filed an Application for Reargument En Banc with the Superior Court, which was denied on October 19, 2012. AE Supply and MP filed a Petition for Allowance of Appeal with the Pennsylvania Supreme Court on November 19, 2012. On July 2, 2013, the Petition for Allowance of Appeal was denied and in the second quarter of 2013 the now final past damage award of $15.5 million (including interest) was recognized. The case was sent back to the trial court to recalculate the future damages only.”

Said Arch Coal about the matter in its Aug. 8 Form 10-Q report: “On July 2, 2013, the Supreme Court of Pennsylvania denied the Petition of Allowance. As this action finalized the past damage award, Wolf Run paid $15.6 million for the past damage amount, including interest, to Allegheny in July 2013. The future damage award is now back before the lower court, but no hearing dates have been set at this time.”

Wolf Run Mining is another Arch subsidiary acquired in the ICG deal.

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.