Longview threatens to sue FirstEnergy over Hatfields Ferry coal contract

The bankruptcy court for Longview Power LLC is due at a Jan. 22 hearing to look at a Dec. 23 motion from Longview to reject a coal ash disposal contract that Longview has with affiliates of FirstEnergy Corp. (NYSE: FE).

Longview said that its Coresco LLC affiliate has been handling coal combustion byproducts for FirstEnergy’s 1,710-MW Hatfields Ferry power plant in Pennsylvania, which FirstEnergy shut in the fall of 2013. Also, on Dec. 13, Longview got a letter from FirstEnergy’s Allegheny Energy unit that said that operations had been suspended at the Hatfields Ferry (also known simply as Hatfield) plant and that coal would no longer be taken from Longview’s Mepco LLC coal producing affiliate, which like Longview is also in Chapter 11 bankruptcy protection.

That coal supply contract dates back to April 2009 and represents a major amount of Mepco’s production that isn’t going to Longview’s own 700-MW coal plant in northern West Virginia.

“Debtors have determined that the Ash Disposal Contract is no longer beneficial to the Debtors since there will be no coal combustion byproducts generated at Hatfield Station for the Debtors to load, transport or place in light of FirstEnergy’s and Allegheny’s determination to shut down operations at Hatfield Station,” said the Dec. 23 petition filed at the U.S. Bankruptcy Court for the District of Delaware. “Accordingly, the Debtors have elected to reject the Ash Disposal Contract.”

Longview said it has advised Allegheny that this ash disposal contract rejection was likely forthcoming in the near term.

In a Dec. 23 letter sent to FirstEnergy by Longview’s legal counsel in response to the Dec. 13 letter, Longview indicated it may not go down without a fight on FirstEnergy breaking the coal supply deal. A heavily-redacted version of the Dec. 23 letter is attached to the court filing.

“Moreover, given your acknowledgment that Hatfield Station is not operational, and the fact that we are not aware of any plan to return the plant to commercial operation in the near term, it unfortunately is clear that you do not intend to comply with your obligations under the Agreement,” said the letter. “Given all facts and circumstances, Mepco has no choice but to consider your letter and actions at a minimum an anticipatory breach of the Agreement, and by your refusal to take deliveries as of January 1, 2014, you are in breach of the Agreement.”

The Dec. 13 letter added: “Seller also requests adequate assurance of future performance under the Agreement. Specifically, to provide Seller with adequate assurances that Buyer intends to meet the Annual Base Amount of coal purchases under the Agreement during 2014, please contact Ray Dombrowski immediately to establish a schedule for make-up deliveries that will ensure Buyer purchases the Annual Base Amount, as well as to discuss the other outstanding breaches. Seller will otherwise consider Buyer’s suspension of coal deliveries to be an anticipatory repudiation of the Agreement and will take any and all steps necessary to protect its rights, including, but not limited to, filing a lawsuit in the United States Bankruptcy Court for the District of Delaware, which presides over Mepco’s and its affiliates’ bankruptcy cases.”

Dombrowski is Longview’s and Mepco’s chief restructuring officer.

U.S. Energy Information Administration data shows that coal suppliers to Hatfields Ferry early in 2013 included Mepco, Amerikohl MiningCONSOL Energy‘s McElroy longwall mine and Alliance Coal‘s relatively new Tunnel Ridge longwall mine, all from mines in northern Appalachia.

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.