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Power plant owners ask bankruptcy judge to toss long-term Peabody contract

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Power plant owners ask bankruptcy judge to toss long-term Peabody contract

Peabody EnergyCorp. could lose a significant long-term coal if a pair of customers succeedin wriggling out of the deal during the coal miner's bankruptcy .

Arizona PublicService Co. and PacifiCorp asked the U.S. Bankruptcy Court for theEastern District of Missouri to enter an order terminating a coal supplyagreement with Peabody for their jointly owned Cholla power plant in Arizona.

The 19-year coal supply contract, originally signed in late2005, has terms that include the delivery of 3.7 million tons to 4.3 milliontons of coal annually between 2010 and 2024, with smaller amounts provided inpreceding years.

An amendment to the agreement, struck in late 2013, reducedthe amount of coal to be shipped to Cholla to a range of 3.55 million tons to4.3 million tons per year for the 2016 to 2024 period. The 2013 price reopeneralso adjusted the base coal sales price to $26.685 per ton.

According to SNL Energy data, Peabody's El Segundo minedelivered 3.3 million tons of coal to Cholla in 2015.

In addition to the base price, the contract also contains aprovision that allows Peabody to collect a payment of $7.35 per ton for each"shortfall ton" if the owners take less than the minimum contractedtonnage. With utility coal stockpiles currently at high levels, coal companieshave discussed increasingly using contracts that include a form ofcompensation for when utilities do not meet their contracted coal commitments.

Cholla was one of four coal plants El Segundo sold coal toin 2015, according to SNL Energy data. Before bankruptcy, Peabody attempted tosell El Segundo toBowie Resource PartnersLP.

PacifiCorp is owned by