Luminant Energy Co. LLC on March 24 asked its bankruptcy court to let it reject a Master Coal Purchase and Sale Agreement effective March 2002, including any transactions, amendments or modifications to that contract, with Cloud Peak Energy Resources LLC.
TXU Energy Trading Co. LP entered into the contract with Kennecott Coal Sales Co. Debtor Luminant is the successor in interest to TXU Energy Trading and Cloud Peak Resources is the successor in interest to Kennecott Coal Sales. Cloud Peak holds a letter of credit from Luminant in the amount of $3.3 million. Cloud Peak Resources is a unit of Cloud Peak Energy (NYSE: CLD), a major producer out of the Powder River Basin.
“Luminant has determined that Luminant does not need the volume of coal contemplated in the Contract for its business operations and, moreover, that the coal prices under the Contract are substantially above current market prices,” said the motion. “Luminant believes that, if necessary, the Debtors can source coal and related services on more economical terms pursuant to other contracts or from other potential coal vendors. Furthermore, negotiations with Cloud Peak are unlikely to be productive at this time.”
Luminant asked for retroactive, nunc pro tunc relief. “Absent nunc pro tunc relief effective as of March 24, 2015, Cloud Peak may attempt to deliver coal at above-market prices and assert administrative expense priority for such coal even though Luminant has more economical alternative sources available,” the company said. “For these reasons, the Debtors believe that the equities weigh in favor of nunc pro tunc relief.”
Luminant, along with various affiliates, including parent Energy Future Holdings, has been in Chapter 11 protection since April 2014 at the U.S. Bankruptcy Court for the District of Delaware. There is an April 7 deadline to object to to this rejection motion, with an April 14 court hearing to be held.