Peabody Energy asserts $45m ‘cure’ claim against Midwest Generation

The Peabody COALSALES LLC unit of Peabody Energy (NYSE: BTU) on Jan. 10 objected to how a 2007 contract it has to supply Midwestern Generation LLC would be handled in the reorganization of Edison Mission Energy and Midwest Generation.

Edison Mission Energy and subsidiary Midwestern Generation, which operates several coal-fired plants in Illinois, have been in Chapter 11 protection since December 2012 at the U.S. Bankruptcy Court for the Northern District of Illinois. The companies how have a reorganization plan up for court approval that covers the sale of most of their assets, including the coal plants, to NRG Energy (NYSE: NRG).

As part of that reorganization plan, Midwest Generation proposes to assume the coal supply deal with Peabody and to pay no “cure costs” associated with its alleged past defaults under that contract.

Under this contract, Midwest Generation is committed to purchase coal from Peabody through the end of the 2016 calendar year. Peabody said that Midwest Generation was and remains obligated to purchase, during calendar years 2013 and 2014, a minimum number of tons of coal from Peabody at certain, previously-negotiated and agreed-upon purchase prices. The tonnage quantity isn’t mentioned in the filing.

After Midwest Generation (MWG) sought bankruptcy protection, it breached and continues to breach the agreement, Peabody wrote. ”Specifically, beginning on February 28, 2013, MWG failed and refused to purchase coal from Peabody in the quantities and at the purchase prices required under said Agreement,” Peabody added. “Furthermore, MWG failed and refused to honor its obligations to Peabody under said Agreement with regards to any additional coal quantities that it purchased during 2013.”

Peabody said that MWG has asserted to the court that the “Cure Costs” currently owing under the agreement are “$0.00.” Peabody added: “[I[t is evident that the Debtors’ assertion that the ‘Cure Costs’ with respect to the Long-Term Coal Supply Agreement are ‘zero’ is wholly invalid. On the contrary, Peabody maintains that the Cure Costs to date with respect to MWG’s failure to purchase coal from Peabody in the quantities and at the purchase prices required under the Long-Term Coal Supply Agreement as well as its failure to honor its obligations to Peabody with regards to any additional coal quantities purchased, are in excess of Forty-Five Million Dollars ($45,000,000).”

Peabody further objects that MWG fails to make any provision for the payment of compensation to Peabody for the actual, pecuniary losses that Peabody has sustained as a result of MWG’s ongoing breaches and defaults under the agreement, including, without limitation, the attorneys’ fees and expenses that Peabody has incurred in attempting to address the foregoing breaches and defaults. Also, Peabody said that MWG has failed to provide adequate assurance of MWG’s future performance under the agreement.

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.