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Supplier Must Pay |$20.9M in Coal Flap

RICHMOND, Va. (CN) - A coal supplier's "ready pile of excuses" doesn't change the fact it breached a contract to provide tons of "clean coal" to Virginia's largest utility, and it now must pay $20.9 million to rectify the situation, a federal judge ruled.

U.S. District U.S. John Gibney Jr. previously ordered North Carolina-based Bransen Energy to pay Dominion Virginia Power more than $1.9 million for the coal it did deliver, which Dominion originally planned to use for testing at its new hybrid energy facility.

Dominion was conducting the tests in part to satisfy various environmental permits issued by the Commonwealth of Virginia, and to make sure it did, it contracted with Bransen to provide so-called "performance fuel" coal that met higher than normal standards for power plants.

Instead of providing that coal, however, Bransen delivered 450,000 tons of lower quality "coke breeze."

Coke breeze, a byproduct created from burning charcoal, is most often used as backfill in construction applications, and differs from higher-quality "performance fuel" or "run-of-mine" coal in its smaller size and lower mineral presence.

In order to meet with Virginia's environmental regulations, Bransen bore the responsibility of testing its fuel for quality and the utility retained the right to reject any subpar materials within two business days of receipt, court documents say.

The contract defines run-of-mine coal as "any and all of the coal to be sold by [Bransen] and purchased by [Dominion], the quality of which conforms to the specifications set forth herein and which does not trigger [Dominion's] rejection rights and which may contain limited amounts of extraneous material," according to the suit.

"Although 'run-of-mine' coal sounds like some sort of middling product, Dominion imposed stringent requirements for the 'performance fuel' testing of the plant," Gibney wrote in his ruling Friday.

Bransen delivered shipments of coal to Dominion from February until December 2011, when the utility claims to have received a tip that Bransen provided it with a lower-quality grade of coal than specified in its contract.

Dominion says that independent testing performed in January 2012 and April 2013 determined the coal, previously deemed ready for use by Bransen exceeded acceptable moisture levels and fell short of its size specifications.

Those piles of coal paid for in full upon receipt and never used for testing at the plant, Dominion says.

Bransen blamed recent rainfall for the rise in moisture but court documents say the sampling, taken from the center of the stockpile protected from the elements a storage facility rented exclusively for storage of Bransen's coal, Dominion claims.

As such, Dominion says, its land lease agreement with storage facility Coal Technology International was subject to termination based on Dominion and Bransen's other agreements.

"Although Bransen is not a party to the land lease agreement, Dominion and CTI expressly intertwined the lease agreement with the other contracts between Bransen and Dominion," court documents say.

"Viewed collectively, the contracts allowed Dominion to test any ready pile that Bransen produced and reject any ready pile that did not meet the specifications," the ruling says.

But court records indicate Dominion was not quite ready to chalk up the loss. Dominion spent more than $10 million trying to process some of the inadequate coal to improve the quality, court documents say, in addition to $1.8 million on storing thousands of tons of unusable coal which in turn cost more than $10 million to replace.

"After concluding that the Bransen coal was a lost cause, Dominion took steps to cover its losses and to make the best of a bad situation," court documents say.

"Bransen produced coal which simply fell below the quality standards of the contract," Gibney wrote.

"In sum, Bransen's ready pile of excuses does not change the fact that Bransen breached the contract."

Attorneys for Bransen Energy did not respond to an email from Courthouse News requesting comment.

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