Peabody Energy has filed suit in US Bankruptcy Court alleging two of its customers reneged on a coal supply contract from its New Mexico mines.
The suit, filed Wednesday, alleges that Arizona Public Service Company and PacifiCorp's decision to cancel coal contracts from Peabody's El Segundo and Lee Ranch mines would violate long-term agreements and a court order, causing "substantial damages" to Peabody.
Peabody, which filed for Chapter 11 bankruptcy in April, had a 19-year supply contract signed with the two utilities in December 2005. The utilities jointly own the 1,105-MW, Cholla coal-fired power plant in northeast Arizona near the New Mexico border.
"[The repudiation of the coal supply agreement will severely disrupt the production process, jeopardize critical aspects of [Peabody's] business ... and its relationships with its suppliers and service providers," Peabody said in the suit. "It will also threaten [Peabody's] relationships and the ability to retain all of the 274 employees working at the mines."
Neither Arizona Public Service nor PacifiCorp responded Thursday to queries for comment. But the company, in a statement to S&P Global Market Intelligence, said it had the right to seek termination of the contract. The company sought to reject the contract "in the best interest of its customers," it said. Peabody said there are no other viable customers for its El Segundo coal, calling the prospect of finding an alternative buyer "virtually nonexistent."
The company delivered 422,453 st of coal to the Cholla plant from the El Segundo mine from January to March, down from 893,011 st during the same three-month period in 2015, according to EIA Form 923 data.
In 2015, the El Segundo mine delivered 3.3 million st of the bituminous coal, which has heat value of 9,175 Btu/lb, ash content of 16.1%, and 1% sulfur.
The El Segundo mine produced 1.5 million st of coal in the first quarter of 2016, down from 1.8 million st in Q1 2015. The mine produced 7.5 million st in 2015, according to the Mine Safety & Health Administration.
