Nasty arbitration case the center of Longview Power’s bankruptcy

Kvaerner North American Construction, which was involved in building Longview Power LLC’s coal-fired power plant in West Virginia, told Longview’s bankruptcy court that the company sought bankruptcy to avoid a protracted arbitration proceeding over plant construction issues.

Kvaerner on Sept. 18 asked the court for relief from the routine automatic stay that a bankruptcy court grants to halt all outside litigation against an outside company. It wants the stay listed as it relates to the existing arbitration proceeding. It also objected to the debtors’ proposed demand and draw on certain letters of credit, and to the debtors’ use of the proceeds of the letters of credit as cash collateral.

On Aug. 20, Longview Power and a related coal mining company, Mepco Holding LLC, sought Chapter 11 protection at the U.S. Bankruptcy Court for the District of Delaware. The company cited certain operating issues with its new, 700-MW Longview coal plant, located just north of Morgantown, W.Va., on the Monongahela River, as the source of the financial troubles that drove it into Chapter 11.

“The Debtors commenced these cases in an apparent effort to forum-shop and avoid any rulings by the Tribunal in the complex Arbitration,” Kvaerner told the court in the Sept. 18 motion. “The Arbitration has been ongoing for over two years and involves the production of millions of pages of documents, numerous fact witnesses and construction industry experts, and hundreds of filings. The Debtors should not be allowed to use the Bankruptcy Code and this Court to gain a tactical advantage and circumvent Arbitration, when, as discussed below, Congress, the United States Supreme Court and the Third Circuit each have established a strong policy in favor of arbitration, even in the context of a bankruptcy case.”

Kvaerner (formerly known as Aker Kvaerner Songer and Aker Construction) provided construction labor, services, and materials, along with Siemens Energy and Foster Wheeler North America, for plant construction. The power facility, owned by Longview, is the largest privately-funded project in West Virginia history, with original overall costs exceeding $2bn, Kvaerner noted.

“Execution of the Power Facility project presented enormous, unforeseeable challenges for Kvaerner that resulted in Kvaerner incurring staggering cost overruns and delays for which Longview and its chosen boiler supplier, Foster Wheeler, are responsible,” said Kvaerner. “As a result, on June 24, 2011, Kvaerner commenced an arbitration proceeding with Siemens as co-claimant, against Longview and Foster Wheeler (Kvaerner, Siemens, Foster Wheeler and Longview together are the ‘Arbitration Parties’), seeking a determination of the Consortium’s various claims against Longview and Foster Wheeler arising from the Power Facility project.”

Kvaerner said that a critical part of the arbitration fact-gathering process is coming up and should not be missed. “The Arbitration Parties had scheduled a site visit in late October 2013, when the Power Facility would go into a pre-planned maintenance shut-down, which would allow the industry experts to perform their due-diligence, inspect the Power Facility, and prepare their expert reports. This inspection is aimed, according to Longview, at investigating the cause of the Power Facility operational problems as well as finding the appropriate fix. The next planned Power Facility maintenance shut-down is not scheduled until at least May or June 2014. The industry experts Kvaerner retained in connection with the Arbitration scheduled and committed their time based on the Arbitration schedule in place as of the Petition Date. Any delay in this schedule will create a hardship to Kvaerner if its experts are unavailable if the Court determines to lift the stay at some unknown future date.”

Also on Sept. 18, Foster Wheeler North America filed a complaint for injunctive relief with the bankruptcy court seeking to enjoin any attempt by Longview from making a demand and drawing on the Foster Wheeler letters of credit until the resolution of the issues raised in the arbitration.

Siemens Energy filed a Sept. 18 request that the court lift the automatic stay and require that Longview continue with the arbitration proceeding. It said there is about $500m in dispute in the arbitration case, with claims and cross-claims made by various parties. While many claims relate to the design and construction of the plant’s boiler, the claims range over a number of issues, including those related to the plant’s air quality control systems, Siemens noted. It said the case is currently set for 55 hearing days to commence on Oct. 20, 2014.

The arbitration matter is due for discussion at an Oct. 7 bankruptcy court hearing.

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.