MidAmerican raises questions about future viability of Arch Coal

MidAmerican Energy Co. on Sept. 15 objected at the bankruptcy court for Arch Coal over a Sept. 12 notice to the court from Arch that it plans to assume certain coal supply deals with MidAmerican as part of its imminent emergence from Chapter 11 protection.

MidAmerican said its six contracts are with debtor Arch Coal Sales, and consist of one “Master Agreement” and five “Confirmations.” There is:

  • the Master Coal Purchase and Sale Agreement, dated as of October 2008;
  • a Confirmation under that agreement dated May 22, 2012;
  • a Confirmation dated October 2012;
  • a Confirmation dated August 2013;
  • a Confirmation dated August 2014; and
  • a Confirmation dated September 2015.

Under the Master Agreement, MidAmerican agreed to purchase coal from Arch Coal Sales on certain confidential terms and conditions set forth both in the Master Agreement and in confirmations executed from time to time by the parties. Each Confirmation, although separate from the other Confirmations, was entered into to address particular sales terms for particular time periods pursuant to the long-term Master Agreement.

“MidAmerican objects to the Debtors’ proposed assumption of the Contracts because the Debtors fail to demonstrate adequate assurance of future performance of reorganized Arch Coal Sales of the obligations that will arise under the Contracts,” said the utility. “Moreover, MidAmerican has reason to believe that certain confidential terms of the Contracts may have been disclosed to third parties during the Debtors’ reorganization process, a nonmonetary default that is not curable. Accordingly, MidAmerican objects to the assumption of the Contracts.”

Parent Arch Coal, Arch Coal Sales and various related companies had earlier this year filed voluntary petitions for relief at the U.S. Bankruptcy Court for the Eastern District of Missouri. 

On Sept. 12, the Arch companies filed their Notice of Filing of Second Amended Plan Schedules, whereby they stated their intention to assume the MidAmerican contracts as executory contracts in accordance with and pursuant to their Fourth Amended Plan of Reorganization.

Said MidAmerican in the Sept. 15 objection: “Pursuant to the Master Agreement (and, by extension, each of the Confirmations executed in accordance with and pursuant to the Master Agreement) there are contractual provisions implicating Arch Coal Sales’ ability to provide adequate assurance of future performance. Given that these contractual provisions are confidential and that the Court does not generally allow parties to file redacted pleadings, if a hearing is held in connection with this Objection, MidAmerican will seek leave of Court to make such arguments in chambers.”

MidAmerican later added: “The only information that the Debtors provided to MidAmerican regarding Arch Coal Sales is the very limited material contained in the Schedules, the Disclosure Statement, and certain supplemental filings in support of the Plan. But these documents provide no meaningful information on the future operations of Arch Coal Sales, no business plan or other information to support the Debtors’ optimistic financial projections or to address the specific prospective operations of Arch Coal Sales in particular. Given the tenuous assumptions and the risk factors conceded in the Disclosure Statement, there is no real assurance that the Debtors generally, and Arch Coal Sales in particular, will be able to meet their financial obligations and that Arch Coal Sales will meet its obligations to MidAmerican for the remaining period of performance under the Contracts.”

MidAmerican drew attention to statements Arch has made about risks for the Black Thunder mine in the Powder River Basin of Wyoming, saying that such coal is what it buys under the six agreements at issue.

Arch Coal had announced Sept. 13 that, just over eight months after filing for Chapter 11, a judge that day confirmed its Amended Plan of Reorganization. Arch, one of the nation’s top coal producers, expects to emerge from bankruptcy in early October.

“The Court’s confirmation of our Plan is the final legal step in our successful financial restructuring,” said John W. Eaves, Arch’s CEO. “We will emerge as a strong, well-positioned natural resource company with a compelling plan for value creation. We have accomplished a great deal through the restructuring process and are confident that we have established a solid foundation for long-term success, built on our strong metallurgical and thermal franchises and our core commitment to safety and environmental excellence.”

St. Louis-based Arch Coal is a top coal producer for the global steel and power generation industries. It is one of several top U.S. coal producers that has lately been working through bankruptcy protection. The biggest U.S. coal producer, Peabody Energy, is subject to a similar reorganization effort. Earlier this year, Alpha Natural Resources was split between two groups of creditors.

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.