Sunoco 2009 Annual Report Download - page 20

Harbor also supplies the hot exhaust gas produced at the plant to a contiguous cogeneration plant operated by an
independent power producer for use in the generation of steam and electricity. In exchange, the independent
power producer reduces the sulfur and particulate content of that hot exhaust gas to acceptable emission levels.
The coke price under the coke agreement at Indiana Harbor reflects the pass through of coal and transportation
costs as well as an operating cost and fixed cost component.
SunCoke Energy is also supplying ArcelorMittal with approximately 700 thousand tons per year of coke
from the Jewell operation. Under the applicable coke supply agreement, the term of that agreement runs through
September 2020 (concurrent with the term of the Haverhill agreement with ArcelorMittal). Under the agreement,
coke is being supplied on a take-or-pay basis through October 2012, and thereafter will be supplied based upon
ArcelorMittal’s requirements in excess of its existing coke production (subject to the Indiana Harbor coke supply
agreement).
Coke production at Jewell through 2007 was sold at fixed prices that escalated semiannually. Beginning in
2008, the price of coke produced at Jewell changed to an amount equal to the sum of (i) the cost of delivered coal
to the Haverhill facility multiplied by an adjustment factor, (ii) actual transportation costs, (iii) an operating cost
component indexed for inflation, (iv) a fixed-price component, and (v) applicable taxes (except for property and
net income taxes). In July 2009, ArcelorMittal filed a lawsuit in Ohio state court challenging the prices charged
to ArcelorMittal under the coke purchase agreement. The lawsuit was removed to federal court in Ohio and in
January 2010, a motion was granted to dismiss the lawsuit without prejudice on the basis of ArcelorMittal’s
failure to allege facts that are sufficient to raise a right of relief above the speculative level. ArcelorMittal has
filed an amended complaint in February 2010. SunCoke Energy continues to believe that the prices have been
determined in accordance with the agreement and intends to vigorously defend its rights under the coke
agreement.
SunCoke Energy is supplying approximately 550 thousand tons per year of coke from its Haverhill plant to
affiliates of ArcelorMittal through September 2020. Under the applicable coke supply agreement, coke is being
supplied to affiliates of ArcelorMittal on a take-or-pay basis through September 2012, and thereafter based upon
requirements in excess of ArcelorMittal’s existing coke production and its other off-take obligations with respect
to SunCoke Energy’s Jewell plant and subject to the Indiana Harbor coke supply agreement. The coke price
under the coke agreement at Haverhill with affiliates of ArcelorMittal reflects the pass through of coal and
transportation costs as well as an operating cost and fixed cost component.
In February 2007, SunCoke Energy entered into coke purchase agreements with two affiliates of OAO
Severstal under which SunCoke Energy would build, own and operate an expansion of the Haverhill plant (that
would double its cokemaking capacity to 1.1 million tons of coke per year) and the addition of a cogeneration
power plant. Operations from the expansion of this cokemaking facility commenced in July 2008 with the
expansion essentially completed in the second quarter of 2009. Capital outlays for the project totaled
$269 million. In connection with the coke purchase agreements, the affiliates of OAO Severstal agreed to
purchase on a take-or-pay basis, over a 15-year period, 550 thousand tons per year of coke from the cokemaking
facility. In August 2009, SunCoke Energy entered into a 12-year coke purchase agreement and companion
energy sales agreement with AK Steel, which replaced the take-or-pay contract with the affiliates of OAO
Severstal effective September 1, 2009 and January 1, 2010, respectively. Under the new agreements, beginning
January 1, 2010, AK Steel is required to purchase all 550 thousand tons of coke per year from this facility (AK
Steel had a limited purchase obligation of 13.5 thousand tons of coke for 2009). In addition, under the energy
sales agreement, AK Steel is obligated to purchase 50 percent of the electricity produced at the associated
cogeneration power plant beginning in May 2010. These contracts are subject to early termination after
November 2014 provided AK Steel has given at least two years notice of its intention to terminate. In 2009 and
2010, coke sold to AK Steel is at a fixed price. SunCoke Energy has contracted for all of its coal needs under this
contract for 2010. Beginning January 1, 2011, the price of coke sold to AK Steel changes to reflect the pass
through of coal and transportation costs as well as an operating cost and fixed cost component.
12