It was then, on December 23, the company announced in a news release it was restructuring the plant’s contracts.
The Englewood, Colorado-based company said then it entered into an agreement with Dominion Virginia Power to restructure the remaining five years of what it called the ROVA I and ROVA II contract “to allow the energy component of the contract to be supplied from outside sources. The restructured contract provides long-term benefit to ROVA, Dominion and its customers.”
The following day the facility was discussed in a 2013 Christmas Eve Westmoreland investor conference call, according to the transcripts filed with the United States Securities and Exchange Commission.
Keith Alessi, executive chairman, discussed the transaction in his opening remarks, saying, “Those of you who have followed us for some time know that ROVA has really been the Sword of Damocles hanging over our head.”
He described the Weldon facility as a power plant it owns and had under-market coal contracts which were expiring. “If we were unable to restructure the agreement with Dominion, the economics of that power plant would go radically upside-down. All the models that bond holders have seen, all the rating agency presentations have assumed that the plant would be, worst case scenario, shut down, because we obviously were not going to run it at a negative.”
The restructuring agreement, Alessi said then, allowed the company to run the plant at positive earnings before interest, tax, depreciation and amortization “and profitability here over the next five years, at which time that contract runs out and the plant would be unencumbered. From a contract standpoint, we’d have an opportunity to monetize that asset …”
Keith Paprzycki, chief financial officer, talked about the financial perspectives of the ROVA transaction and how it would “hopefully provide some color that was not in yesterday’s release.”
Said Paprzycki: “We’re very pleased with the financial outcome here. Over the past three years, ROVA has generated between $10 million and $11 million of free cash flow (annually). With the restructuring that we’ve put in place and the current market power prices, we expect to average between $7 million and $8 million of free cash flow going forward (annually).”
He told members of the conference call some years the cash flow is higher. “Some years will be lower depending on the timing of major maintenance. We’ll also benefit from the remainder of the below-market coal contracts.”
Overall, Paprzycki said, “We’ve removed the risk of having to procure market coal, which could have increased our cost between $25 million and $30 million and that would have flipped ROVA’s free cash flow negative upwards of $20 million a year. So, this has been a negative concern or a negative overlay from the rating agencies, and we feel we successfully addressed this concern in exchange for a pretty minimal reduction in our free cash flows.”
Brian Taddeo of Robert W. Baird & Co., a wealth management company, asked Alessi whether in light of adjusting contracts with Dominion there is “still an effort or push to sell off that facility now that you can service the contract with market power?”
Replied Alessi: “I don’t think that you should look at monetization until the end of the term. That’s not high in our list of priorities. The cash flow that it will generate over the next five years are plenty satisfactory to us to keep it going although its non-core monetization is the ultimate objective. There’s not the pressure there would have been at some previous points in our history.”
Slightly more than three years later, the company announced in a news release the Weldon facility would cease operations and the president of Westmoreland Partners confirmed Thursday the plant was up for sale.
“We’ll help market it,” Halifax County Economic Development Commission President Cathy Scott said this morning. “The target market for that facility is highly specialized. We would do whatever we can do to help them sell their facility and keep it operating in the Roanoke Valley.”
According to the Westmoreland Coal Company’s website, the company announced at the end of December it amended its power supply agreement with Dominion Virginia Power and will no longer be required to operate the Weldon facility.
The move will, as of the first of this month, create cash savings, the company said on its website.
Under the amendment, Westmoreland will begin to provide the required contracted level of energy to Dominion through power purchase contracts, in lieu of providing it by operating the Weldon plant.