The South CarolinaPublic Service Authority is seeking to terminate the remainder of a1 million-ton coal contract with AlphaNatural Resources Inc., citing a bankruptcy provision of their supplyagreement.

Coal generation has struggled to maintain its dominant positionin electricity markets as natural gas has been overtaking the former lead source of U.S. electricity generation.The South Carolina Public Service Authority said in a filing in Alpha's Chapter11 bankruptcy case that it wants to terminate a contract in which it agreed to buy500,000 tons of coal annually in 2015 and 2016.

The company cited a portion of the coal supply agreement as itslegal basis for seeking rejection of the contract.

Alpha, noting coal supply contracts are "the lifeblood"of its operations in an April 8 filing, agreed the contract includes a provisionfor an immediate termination of the contract when Alpha entered bankruptcy. However,Alpha said the contract does not allow the utility to wait the eight months it didin this case before purportedly exercising that right.

"Contracts such as the purchase agreement at issue hereare critical to the debtors' continued operation and prospective reorganization,"Alpha wrote to the court. "The debtors' business of mining and processing coalis predicated on their expectation of selling that coal to counterparties in satisfactionof their outstanding purchase and sale agreements for coal."

The contract was specifically for coal from the Hunter Peerlessmine, located in Boone County, W.Va. Part of the dispute between the two entitiesis whether or not the purchase agreement constitutes a forward contract, which wouldbe treated differently under bankruptcy rules.

Alpha is in the middle of a Chapter 11 bankruptcy . It is seeking to core assets into a sustainableenterprise while preparing its other mines to focus on reclamation efforts.