BY ANDY TAYLOR
chronicle@taylornews.org

COFFEYVILLE — A legal dispute between Coffeyville Resources Nitrogen Fertilizers and the City of Coffeyville concerning the City’s electrical power to the fertilizer plant was officially settled on Tuesday.
City commissioners voted unanimously to accept a settlement agreement with Coffeyville Resources Nitrogen Fertilizers after attorneys for both parties reached an agreement during mediation meetings more than one week ago.

In November 2008, Coffeyville Resources Nitrogen Fertilizers filed a lawsuit against the City of Coffeyville concerning the electric rates assessed by the City for the fertilizer company. Coffeyville Resources officials said in a press statement Tuesday that the lawsuit was filed for what the company thought was excessive charges beyond what the City and the company had agreed to in an existing electrical use contract (the City of Coffeyville provides electrical power to the fertilizer company).

The City of Coffeyville does not dispute that additional charges were applied but contends that the additional charge was a tariff that the City found necessary as a result of new power supply and transmission agreements. A press statement issued by the City of Coffeyville on Tuesday said the new power supply agreement was created after fertilizer company had expressed “an unwillingness” to negotiate any substantive changes to the previous 2004 electric use agreement.

Under the terms of the settlement, the City of Coffeyville will immediately refund Coffeyville Resources Nitrogen Fertilizers $4.79 million. During the process of the lawsuit, the City of Coffeyville sat aside $5 million of the company’s electric use payments for such a contingency.

Other terms of the settlement:

• Coffeyville Resources will continue to pay the City a margin of $0.003 for all kilowatt hours it uses in additional to actual energy costs, as called for in the original contract. Coffeyville Resources contends that the original contract called for the fertilizer company to assist in subsidizing transmission of electricity to the entire community. The settlement will require the fertilizer company to pay for actual energy costs, not subsidized costs.

• Coffeyville Resources agreed to forego a previous exemption of the margin charge for amounts of electricity taken between 400 million and 500 million kilowatt hours per year.

• The City of Coffeyville will be able to meet the fertilizer company’s future electric service requirements, whatever they may be, rather than setting aside a specific reserve as provided for by terms in the original contract.

• The City of Coffeyville has agreement to an option that would let Coffeyville Resources Nitrogen Fertilizers extend the agreement, which would otherwise end on July 1, 2019, by five additional years in exchange for a slight increase in the applicable margin charge.

Why was a change in the power supply required in 2008, thus leading to a legal dispute between the City and the fertilizer company?

According to city officials, the City of Coffeyville converted its network transmission service as a condition of an August 2007 power supply contract with the Grand River Dam Authority. As part of that agreement with GRDA, the City of Coffeyville was obligated to join a new power pool called the Southwest Power Pool, whereby costs were to be shared or socialized among the entire SPP system. That shared costs would have saved the City of Coffeyville and Coffeyville Resources a minimum of $12 million, according to city officials.

Under the settlement reached on Tuesday, the City of Coffeyville and Coffeyville Resources will agree to share the costs of transmission services on a proportional use basis.

“This solution to our dispute is good for the City and good for the company,” said Mayor Alec Hendryx in a press statement. “In light of the changes to our transmission agreements, which were brought about when we signed a long-term, cost-based power supply agreement with the Grand River Dam Authority, we have consistently worked for a fair compromise, and that is what this agreement achieves.”

Coffeyville Resources chief executive officer Jack Lipinski also expressed satisfaction in the settlement, noting that it would help the company put Coffeyville at the center of the national fertilizer production industry.

“To continue its leadership role in the nation’s fertilizer marketplace, Coffeyville Resources needs a dependable and reliable supply of electricity at a predictable cost,” said Lipinski. “That is what this agreement provides.”