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Appellate court sides with Washington over coal export terminal sublease denial

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Appellate court sides with Washington over coal export terminal sublease denial

The Washington State Court of Appeals sided with the state and environmental groups over a proposed West Coast coal export terminal sublease, reversing and vacating a superior court's orders.

Millennium Bulk Terminals-Longview LLC, a subsidiary of Lighthouse Resources Inc., wanted to sublease state-owned aquatic lands from Northwest Alloys Inc. to build a coal export terminal in Longview, Wash., adjacent to the Columbia River. The state Department of Natural Resources, or DNR, denied Northwest Alloys consent to sublease the land to Millennium in January 2017, saying the companies did not provide requested information on Millennium's financial condition and citing other factors. The agency was especially concerned due to poor coal market conditions and Millennium's financial condition, given that Arch Coal Inc., which had owned 38% of Millennium, sold its interest to Lighthouse during its bankruptcy reorganization.

Northwest Alloys and Millennium appealed the state's decision to the superior court, which ruled that the state's denial was "arbitrary and capricious" and ordered it to further consider the sublease request.

The state and environmental intervenors appealed that ruling to the Court of Appeals, arguing that the denial was not arbitrary and capricious because Northwest refused to provide the requested information about Millennium. Millennium and Northwest cross-appealed, arguing that the superior court "applied the incorrect standard of review," according to an Aug. 20 court opinion.

The Washington State Court of Appeals wrote that the Department of Natural Resources', or DNR's, decision was not arbitrary and capricious because it "reasonably considered the factors identified in the lease in light of attending facts and circumstances." The lease allows the state to consider a potential subtenant's financial situation when determining whether to approve the sublease, and the subtenant could potentially affect sensitive public lands even if Northwest was held liable, the court said.

"In addition, the fact that Millennium's financial statements would have confirmed DNR's suspicions that Millennium's financial condition remained precarious does not render the financial statements irrelevant," the court said. "Millennium's financial statements would have shown Millennium's assets, liabilities, income, and cash flow, all of which were relevant, critical considerations in assessing Millennium's financial condition. Even if Millennium relied entirely on its parent company for operating income, the financial statements would have shown DNR how much the parent company was regularly investing and how Millennium used those investments."

The original permit application for the project initially said the terminal would handle and export about 5.2 million tonnes of coal annually, but it was later revealed that Millennium "intentionally concealed the extent of its plans for the coal export facility in order to avoid full environmental review," according to the court. The company revised the permit application and disclosed that the project would seek to export 44 million tonnes of coal a year and add two large docks to the property that would require significant dredging on the aquatic lands within and outside the leased area. The court wrote that DNR could take the company's failure to disclose its long-term plans for the terminal into its consideration since the lease "expressly authorized DNR to consider Millennium's business reputation in considering whether to grant consent to sublease."

"DNR's consideration of Millennium's financial condition and business reputation was expressly authorized under the lease," the court said. "And the additional information DNR sought from Millennium, which Millennium failed to provide, was relevant to DNR's inquiry."

Kristin Gaines, senior vice president of regulatory affairs for Millennium, said in a statement that the court ruled incorrectly and the company will explore legal and other remedies to move the project forward.

"Lost in this decision is the fact that Millennium has already spent millions of dollars to clean up the site and remedy violations from the previous tenant Chinook Ventures," Gaines said. "Our company's financial commitment to the site cleanup, and the recent growth in new revenue-generating business activities on the site, demonstrates our strong financial position and our commitment to creating shared value with our local community."

Washington Commissioner of Public Lands Hilary Franz applauded the court in an Aug. 21 statement for upholding her agency's denial of the sublease.

"The company repeatedly refused to comply with reasonable requests for information related to its proposal," Franz said. "Washington's aquatic lands are too important to risk on projects that are not transparent and financially sound."