Belle Ayr retrospective

A large sign shows the way to Blackjewel LLC’s Belle Ayr mine at the intersection of Highway 59 and Bishop Road south of Gillette.

More than three weeks of not producing coal is costing Blackjewel LLC more than employees, it may also lose its largest and oldest customer.

Westar Energy has filed a motion with the U.S. Bankruptcy Court asking either for guarantees the coal producer can resume supplying it with thermal coal from the Powder River Basin or to terminate the contract.

Westar Energy operates the Jeffrey Energy Center in Topeka, Kansas, the state’s largest power generation plant that exclusively burns Blackjewel coal from the Eagle Butte mines in Campbell County.

The Wyoming mines have supplied the 2,178 megawatt coal-fired generation plant since 1973 when they were opened by AMAX Coal West. The power plant supplies electricity to 700,000 customers. The contract with Westar Energy has been renewed and updated many times over the past 45 years.

In 2018, Eagle Butte sold about 6.1 million tons of coal to the Jeffrey Energy Center, making it by far the mine’s and company’s largest single customer, according to the U.S. Energy Information Agency. In the first quarter of this year, Eagle Butte shipped 1.35 million tons of coal to the power plant.

Since Blackjewel filed for Chapter 11 bankruptcy reorganization and shut its mines down July 1, it hasn’t been supplying the Jeffrey Energy Center with the coal it was contracted to, the motion says.

The contract is set to expire in 2020 and also puts Westar in danger of not fulfilling other agreements it has with BNSF and Union Pacific railroads to deliver coal.

“Since the petition date, the Debtor has failed to adequately supply the Energy Center with the quantities of coal needed by Westar Energy under the Coal Supply Agreement,” the motion says.

Westar goes on to say that it has lost faith in the company in light of information that’s been revealed since the bankruptcy filing, including shaky loan deals, declined financing and about 1,100 workers given bad paychecks.

In its motion, Westar says it questions whether Blackjewel will have “the financial wherewithal” to resume operations and fulfill its obligations under the contract.

The longer Blackjewel’s shutdown continues, the more dire the situation gets for the Jeffrey Energy Center, which under its contract cannot buy coal from other producers. The motion filed this week asks the court for “remedies” to the situation, including terminating the agreement and allow Westar to buy coal somewhere else.

Because the mines have been closed so long, Blackjewel customers have to look to their own futures and make sure they have a reliable source of coal.

“This is indicative of the problem that any customer of Blackjewel has,” said Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming. “This isn’t a company that’s been closed a week, it’s going on a month. When it goes this long, you have to start talking about arranging new fuel contracts.”

Things happen in the coal mining industry to interrupt deliveries, like weather and transportation issues, Godby said. Those are clearly temporary and that’s why power plants have stockpiles. When a shutdown goes on for a month or more, that’s more than a hiccup, it leaves customers needing to look out for their own futures.

“The bottom line is Blackjewel hasn’t been able to uphold the contract and if Blackjewel resumes operations, (Westar) is concerned if they’ll still be bound by that contract,” he said. “Blackjewel hasn’t officially closed, which complicates things with their contracts.”

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