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Kentucky utilities declines coal delivery make-up tons from Hartshorne Mining

Highlights

Roughly 706,688 st declined from 2019

Utilities not terminating supply contract yet

Houston — Louisville Gas and Electric and Kentucky Utilities said it was declining coal delivery make-up tons from 2019 with Hartshorne Mining, the subsidiary and operator of Paringa Resources, according to state regulatory filings.

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The utilities said Hartshorne Mining was required to deliver 1 million st of barge coal in 2019 from its Buck Creek complex in western Kentucky, but the producer only shipped 293,312 st of coal, according to the filings published by the Kentucky Public Service Commission on June 8.

LG&E and KU said it is declining the 706,688 st available under the supply agreement, which was worth over $29 million.

The two parties are in the third year of a six-year deal that called for up to 4.75 million st of 11,200 Btu/lb barge coal worth around $205 million. Hartshorne was expected to supply up to 250,000 st in 2018, 1 million st/year from 2019-2022 and an additional 500,000-750,000 st in 2023.

The base price of the coal is on a cumulative basis, with the first 750,000 st of coal delivered at $40.50/st FOB barge, $41.50/st for the following 1 million st, $43/st for the next 1 million st, $44.25/st for the next 1 million st, and $45.75/st for the remaining 1 million st.

Paringa Resources filed for Chapter 11 bankruptcy reorganization on February 20.

In a May 14 filing with the US Bankruptcy Court for the Western District of Kentucky, LG&E and KU said that they and their customers should not be "hostage to unreliable suppliers." They said they would not consent to amendments to their contract that would be needed to permit a cure and adequate assurance of future performance.

"That supply agreement has regularly been in default from its inception, and remains in default today, because the debtors have consistently been unable to supply the volume of coal required by the contract from the required source," LG&E and KU wrote in the filing. "LG&E and KU have a critically important public mandate to ensure the stable coal supplies needed to continue providing electric power to nearly one million customers in Kentucky."

Through the first two months of 2020, Hartshorne has only delivered 89,714 st of coal to LG&E and KU, according to a June 8 Kentucky PSC filing, down 76,753 st from the ratable required delivery amount of 166,677 st.

"Accordingly, a non-monetary contract default presently exists, for which the LG&E and KU supply agreement contains a 30 day cure period," the filing said. The utilities "are not at this time directly acting to terminate the contract, but may choose to do so through the bankruptcy court at the appropriate time if the foregoing default is not cured or adequate assurance is not given."