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FirstEnergy Settles BNSF, CSX Coal Delivery Row for $109 Million

Law360 discussed Kirkland's win for BNSF in a lawsuit against FirstEnergy for breach and repudiation of a long-term contract for the transportation of coal to FirstEnergy’s coal-fired power plants.

A FirstEnergy Corp. unit said on Thursday that it will pay $109 million to two railway companies to settle claims that it failed to fulfill the terms of a coal transportation contract, a situation that the company had tried to blame on a U.S. Environmental Protection Agency power plant emissions rule.

FirstEnergy said that in November it lost an arbitration over whether the EPA's Mercury and Air Toxics Standards rule, which limits emissions from coal-fired power plants, constituted the kind of "force majeure," or unforeseeable, event that would allow its subsidiary FirstEnergy Generation LLC to escape a coal transportation contract with BNSF Railway Co. and CSX Transportation Inc.

FirstEnergy said as a result of its efforts to comply with the MATS rule, all the coal plants covered by the contract were deactivated by April 2015. An arbitration panel earlier this month ruled on liability in favor of BNSF and CSX, the company said in a quarterly financial report.

"In the liability award, the panel found, among other things, that [FirstEnergy Generation LLC's] demand for declaratory judgment that force majeure excused FG's performance was denied, that FG breached and repudiated the coal transportation contract and that the panel retains jurisdiction of claims for liquidated damages for the years 2015-2025," FirstEnergy said in the filing.

The dispute arises from FirstEnergy Generation LLC's contract with BNSF and CSX for the transportation of a minimum of 3.5 million tons of coal annually through 2025 to certain Ohio coal-fired power plants.

FirstEnergy said that the $109 million will be paid in three annual installments beginning in May.

Separately, the company said that FirstEnergy Generation LLC was hit in December with another demand for arbitration by BNSF and Norfolk Southern Corp. related to another long-term coal transportation contract, that one covering the delivery of 2.5 million tons annually through 2025.

"If the definitive settlement agreement with CSX and BNSF is not completed, or the dispute with BNSF and NS is not settled, the amount of damages owed to CSX, BNSF and NS could be materially higher and may cause FES to seek protection under U.S. bankruptcy laws," FirstEnergy said in the filing.

BNSF is represented by Daniel Donovan, Bridget O'Connor and Judson Brown of Kirkland & Ellis LLP.

Counsel for the other parties was not available Thursday.

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