State Says Coal Supplier Cheated

CHARLESTON (CN) - A coal supplier's decision to seek profits in a booming energy market rather than fulfill its long-term contract with South Carolina's state-run power company has cost the utility more than $50 million, the South Carolina Public Service Authority claims in Federal Court.

Appalachian Fuels, of Ashland, Ky., and its sales agent, Thoroughbred Fuels, of Lexington, Ky., agreed in January 2003 to supply the South Carolina Public Service Authority with enough coal to guarantee the continued operation of its massive electric generation facility in Cross, S.C., the utility says.

But as the price of coal more than tripled on the open market, from the $23.50 a ton to which the parties agreed in 2003, Appalachian sold the coal intended for the authority, also known as the Santee Cooper utility, to other customers for a substantial profit, the state says.

Appalachian allegedly failed to maintain reserves it had promised to hold for the authority's use, and never obtained the necessary licenses and permits required to fulfill the terms of its agreement with the authority.

Jeff Watkins, chief coal industry analyst with Wood Mackenzie, a global energy consultancy, said the escalating price of coal on the open market has inspired many suppliers to try to renegotiate contracts to boost their profits.

While there are hundreds of coal suppliers in the United States, Watkins said six firms control about 60% of domestic production, which is helping to keep its price elevated.

International markets aren't offering any relief to utilities like Santee Cooper, because the price of coal is "also elevated there due to the high global demand for coal," Watkins said.

The Cross facility is the largest generator Santee Cooper operates, producing more than 1,160 megawatts of electricity per hour. It provides power directly to 155,000 residential and commercial customers in Berkeley, Georgetown and Horry counties.

Power generated by the Cross facility is also distributed by the state's 20 electric cooperatives to more than 665,000 customers throughout the state.

Thomas Milligan, of Mount Pleasant, S.C., represents the utility. The case was removed to Federal Court on Tuesday.

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