Duke raises complaint with Patriot Coal over rail charges

Duke Energy Carolinas LLC on Dec. 10 filed an objection at the bankruptcy court for Patriot Coal, saying Patriot’s offer to pay no money to cure a coal contract default is unreasonable.

Patriot, which has been in Chapter 11 bankruptcy protection since mid 2012, is working toward an imminent exit from bankruptcy with reworked finances. Part of the exit process is to work out “cure” payments, often involving pennies on the dollar of what is owed, with contract counterparties.

Under a November 2010 contract between Duke and Patriot Coal Sales LLC, Duke wants the court to enter an order requiring the Patriot companies to pay Duke $27,462 (plus all other amounts which may be due and owing under the agreement) in connection with the debtors’ proposed assumption of the agreement. Assumption means the agreement will still be held by the reorganized Patriot.

The coal supplied to Duke pursuant to under the agreement is delivered to various sites by rail. An attachment to the filing indicates this is coal from the Federal No. 2 longwall mine in northern West Virginia to two units at the Cliffside power plant, and from the Holbrook operation in Central Appalachia to the Marshall power plant.

Under the agreements with the applicable rail carriers, Duke is required to pay “underweight” charges to the carriers in the event that a railcar contains less than a specified capacity of coal. Coal Sales is required to reimburse Duke for these underweight charges, and Duke is permitted to offset these charges against amounts due to Patriot Coal Sales for coal deliveries.

On or about Sept. 4, 2013, Duke said it received an invoice from CSX Transportation for underweight charges totaling $33,947. Duke gave notice of these charges to Patriot Coal by letter dated Oct. 14. Patriot Coal Sales has reimbursed Duke for all of these underweight charges except a charge in the amount of $27,462 related to a shipment of coal by CSX on June 28, 2012 (the “CSX Underweight Charge”).

“The only explanation offered by Patriot Coal for its failure to reimburse Duke for the CSX Underweight Charge was that it related to a pre-petition shipment,” Duke noted. “Duke believes that the CSX Underweight Charge is a post-petition debt incurred in the ordinary course of business that is properly due and payable….”

The cure amount proposed by Patriot in connection with the assumption of the agreement is $0.00. “Patriot Coal’s failure to reimburse Duke for the CSX Underweight Charge is an event of default under the Agreement,” Duke added.

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.