Bowie Resource Partners describes coal supply deals with PacifiCorp, IPA

Bowie Resource Partners LP has two long-term coal supply agreements with PacifiCorp, one for the Hunter Power Plant and one for the Huntington Power Plant, each of which includes fixed pricing, subject to price escalators and adjustments.

The PacifiCorp agreements provide for aggregate sales of a minimum of 4.5 million tons per year and a maximum of 7.5 million tons per year, said Bowie in a June 19 prospectus filed with the SEC in support of its planned initial public offering. The PacifiCorp coal supply agreements include provisions that require the customer to compensate Bowie (either in the form of a shortfall fee or by purchasing any shortfall tonnage during the following contract year) in the event the customer does not take delivery of the minimum annual volume of coal specified in the applicable coal supply agreement.

The PacifiCorp coal supply agreements include price escalators, as well as provisions that allow Bowie to pass through (by means of a price increase) certain increases in mining and transportation costs. A minimum of 2.5 million tons, and a maximum of 4.5 million tons, of the coal to be delivered to PacifiCorp is subject to a price reset effective Jan. 1, 2016, based on a weighted average formula that takes into account a base price, the price of coal sold by Bowie in 2015 (adjusted for delivery FOB the railcar) and certain index pricing. Based on this formula, and upon a previously determined “ceiling” price for the 2016 calendar year, Bowie expecs this price reset for the 2016 calendar year to result in a price slightly below that for the 2015 calendar year.

  • The Hunter Power Plant agreement requires PacifiCorp to purchase a minimum of 2.5 million tons and a maximum of 4.5 million tons of Bowie coal per year through Dec. 31, 2020.
  • The Huntington Power Plant coal agreement, which was executed on Dec. 12, 2014, as part of the recently-concluded “Utah Transaction” and became effective upon the closing of that deal, requires PacifiCorp to purchase all of its coal requirements for the Huntington Power Plant from Bowie through Dec. 31, 2029, with a minimum of 2.0 million tons of coal per year and maximum of 3.0 million tons of coal per year, subject to certain exceptions to the minimum tonnage requirements through 2020. From Dec. 12, 2014 until the June closing of the Utah Transaction, Bowie sold coal to PacifiCorp for the Huntington plant under an interim coal supply agreement.

The PacifiCorp coal supply agreements permit the customer (or, in the case of the Huntington Power Plant, the customer and Bowie) to terminate the agreements in the event changes in regulations affecting the coal industry increase the price of coal beyond a specified amount, subject to the non-terminating party’s right to elect to continue the agreement by bearing such additional costs above the specified amount. In addition, PacifiCorp may terminate if certain regulations or other governmental actions affect, in the case of the Huntington plant, PacifiCorp’s ability to use the minimum tonnage, or increase, in the case of the Hunter plant, PacifiCorp’s cost of handling and consuming coal above a specified threshold, subject to Bowie’s right to continue each agreement for a specified period and to supply coal under such agreement with certain price adjustments.

The PacifiCorp coal supply agreements also contain force majeure provisions allowing for the suspension of performance by either party for the duration of specified events to the extent made necessary by any such force majeure event.

There are also two major deals with the Intermountain Power Agency

Bowie has two long-term coal supply agreements with the Intermountain Power Agency (IPA), each for IPA’s Delta Power Plant (also known as the Intermountain Power Project) and each of which includes fixed pricing, subject to price escalators and adjustments. The IPA coal supply agreements provide for aggregate sales of a minimum of 2.5 million tons per year and a maximum of 3.2 million tons in 2015 and a maximum of 3.0 million tons per year thereafter.

Under each IPA coal supply agreement, in the event the customer does not take delivery of the annual volume or minimum annual volume of coal, as applicable, Bowie may reschedule delivery of all or part of such shortfall tonnage or sell such shortfall tonnage to an alternate buyer, in which case the customer will compensate it for a specified percentage of administrative fees and for any deficiency in the per ton price received.

One agreement requires IPA to purchase 2.0 million tons of coal (Sufco mine quality) per year through Dec. 31, 2024, with an option for the 2015 calendar year only for IPA to purchase an additional 0.2 million tons. The other agreement requires IPA to purchase a minimum of 500,000 tons and a maximum of 1.0 million tons of coal (Skyline mine quality) per year through Dec. 31, 2024.

The agreements with IPA include price escalators, as well as provisions that allow Bowie to pass through (by means of a price increase) certain increases in mining and transportation costs. The IPA coal supply agreements permit either the customer or Bowie to terminate the agreement in the event changes in regulations affecting the coal industry increase the price of coal beyond a specified amount, subject to the non-terminating party’s right to elect to continue the agreement by bearing such additional costs above the specified amount.

In addition, the IPA coal supply agreements contain force majeure provisions allowing for the suspension of performance by either party for the duration of specified events to the extent made necessary by any such force majeure event. If a force majeure event prevents Bowie from delivering or IPA from accepting more than 30% of each month’s coal during any fiscal year, and if such force majeure event continues and cannot be eliminated for a six month period, then the party not claiming force majeure may terminate the applicable coal supply agreement.

Notable is that the Los Angeles Department of Water and Power and other backers of the 1,800-MW IPA power plant are working on a plan to shut the existing coal plant by mid next decade and replace it with a gas-fired power plant at the site.

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.