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Thursday, Dec. 7, 2017 12:09 am

City officials sued over coal contract

Lawsuit says CWLP overpaying for fuel

 A Springfield couple is suing Mayor Jim Langfelder, corporation counsel Jim Zerkle and two City Water, Light and Power officials, saying they wrongly convinced the city council to approve a 2016 coal contract that is costing ratepayers $5 million a year more than it should.

Central in the lawsuit filed Nov. 29 is a report issued by a city-paid consultant that says a proposed price of $39 per ton from Arch Coal was too high and that the city should seek a lower price. According to the lawsuit, the report was transmitted to Zerkle on Sept. 15, 2015, seven months before the city council approved a contract that calls for Arch to deliver more than 1 million tons of coal per year at the rate of $35.90 per ton. The contract approved last year runs through 2020.

Attorneys for Michael and Jennifer Frakes, the plaintiffs, say that the mayor and other officials concealed the report from the city council. However, the city on Wednesday released a snippet of a city council executive session held two weeks before aldermen approved the deal with Arch on April 5, 2016. The portion of the meeting released by the city lasts less than three minutes. During the session, corporation counsel Jim Zerkle said that the city had retained the consultant as a potential expert witness in the event that the coal contract ended up in arbitration and that the report discussed strategies that the city could use during negotiations and was therefore subject to attorney-client privilete. “Arbitration and litigation is going to be the same thing,” Zerkle said. The recording shows that there was no substantive discussion of the report’s content during the executive session, and no aldermen asked any substantive questions about the report. Aldermen were allowed to see the report during the executive session, but were not provided with copies, according to the recording, which shows that Zerkle invited council members to schedule appointments with his office to review the report in detail.

“The crux (of the lawsuit) is, did the aldermen know about the (consultant’s) report,” Langfelder says. “They did.”

David Axelrod, a Chicago attorney who is representing the plaintiffs, says that he obtained the report via Freedom of Information Act request. He also disputed the notion that the report could not have been publicly released while the council was considering a new price with Arch, which previously had been selling coal to CWLP at the rate of $45 per ton.

“I’m confident in what we alleged in the complaint,” Axelrod said. “Obviously, we haven’t conducted any discovery at this point.”

Other allegations contained in the lawsuit are similar to points argued by Foresight Energy, an Arch competitor, which unsuccessfully tried to wrest business away from Arch by arguing that it could provide better-quality coal at a cheaper price. Axelrod said Foresight is playing no role in the lawsuit filed last week.

Between lower per-ton costs and higher BTU outputs, a deal with Foresight would have cost the city $5 million a year less than the Arch contract. But Langfelder said it wasn’t that simple. Among other things, he noted, Arch agreed to dispose of coal ash from city generators for $5 per ton.

“They (Foresight) didn’t have the (ash disposal) permit yet, they said they’d have it in short order,” Langfelder said. “You have to compare apples to apples.”

In addition to Langfelder and Zerkle, who are accused of breaching fiduciary duties, Arch, CWLP chief utility engineer Doug Brown and CWLP electric division manager John Davis are named as defendants. The plaintiffs say that Zerkle and Langfelder should be held liable for excessive payments, and they are also asking that the contract be voided and that Arch return excessive payments to the city.

Contact Bruce Rushton at brushton@illinoistimes.com.


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