Dominion objects to Alpha plan to ‘cherry-pick’ coal supply deals

Virginia Electric and Power d/b/a Dominion Virginia Power on July 8 objected to the “piecemeal” assumptions by Alpha Natural Resources of several coal supply agreements, since those agreements are technically “confirmations” under one master coal supply deal that has to be either assumed or rejected as a whole.

In August 2015, Alpha, a top U.S. coal producer, filed for Chapter 11 protection at the U.S. Bankruptcy Court for the Eastern District of Virginia. Lately the court has approved Alpha’s plan to split the company in two, with many of the mines going to certain creditors under a new company known as “Newco,” or more specifically as Contura Energy, and other mines staying with a reorganized Alpha.

Dominion said it has gotten notices from Alpha that it wants to assume, on behalf of itself or Newco, various coal supply deals. For example, it would assume a coal deal with: “Virginia Electric & Power Co, Attn Manager, Fuel Contracts, 120 Tredegar Street, DC-3, Richmond, VA 23219; Debtor Entity: Alpha Coal Sales Co., LLC; Assigned to Entity: Reorganized Debtor To Be Determined; Contract Description: Coal Sales Agreement/Coal Sales Agreement – Spot Sales Agreement (From 7/29/2014); Cure Payment: $0.”

Another assumption notice referred to: “Virginia Electric & Power Co, Attn Manager, Fuel Contracts, 120 Tredegar Street, DC-3, Richmond, VA 23219; Debtor Entity: Paramount Coal Company Virginia, LLC; Assigned to Entity: Newco Entity To Be Determined; Contract Description: Coal Processing and Loading Agreement/Coal Processing and Loading Agreement Contract No. – 103911.” 

But Dominion said it and Alpha Coal Sales Co. LLC are parties to a Master Agreement for the Supply of Coal Effective Jan. 1, 2009 (the “Master Agreement”), pursuant to which Alpha sells coal to DVP as memorialized by written confirmations setting forth the applicable term, product, contract price, source(s), delivery method, delivery point, and other details of each transaction entered into pursuant to the Master Agreement.

Said Dominion in its July 8 objection: “It is plain from the express language of both the Master Agreement and each Confirmation entered into thereunder that the Master Agreement and all Confirmations entered into thereunder constitute a single, integrated agreement and that the parties entered into the Confirmations in reliance on that understanding. Indeed, none of the Confirmations can stand alone, as they are all expressly subject to the terms set forth in the Master Agreement, except as such terms are expressly amended in the applicable Confirmation.

“Contrary to the foregoing authorities, the Debtors appear to be attempting to cherry-pick only certain benefits and burdens under the Agreement and to assume and assign only those selected benefits and burdens to separate assignees. In doing so, the Debtors are seeking to thwart the parties’ express expectations upon entering into each Confirmation. As a result, the Debtors have failed to provide adequate assurances that all of the obligations under the Agreement, which includes the Master Agreement and all Confirmations entered into thereunder, will be performed in the future by any proposed assignee. Moreover, as a practical matter, it is unclear how the Debtors envision such a partial assignment working, as each Confirmation expressly incorporates the terms of the Master Agreement and thus cannot be interpreted without reference to its terms. Accordingly, if the Debtors wish to assume and/or assign the Agreement, they must assume and/or assign it as a whole, in its current form, including all of the Confirmations and amendments thereto, to only one assignee.”

Dominion asked that the court: deny Alpha’s attempt to assume and assign only portions of the agreement, in a piecemeal fashion, to any assignee and to reject other portions of the agreement; in any order approving the assumption and assignment of the agreement, require Alpha to assume and assign the agreement as a whole, including the Master Agreement and all confirmations and amendments thereto, to a single assignee; and require strict proof of adequate assurance of any assignee’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.