PORTLAND, Maine — Managers of the shuttered Great Northern Paper mill were ordered in February to pay $9.2 million to a natural gas supplier, with half the payment covering fuel the East Millinocket mill owners promised to buy, but never did.
The arbitration award granted by attorney Peter DeTroy stems from an agreement the mill owners reached in 2012 to buy compressed natural gas delivered by truck from the Massachusetts-based Xpress Natural Gas, or XNG.
XNG claimed that it invested $4.5 million to buy equipment to prepare for the conversion of the mill’s boiler systems to also burn natural gas.
It separately had a two-year supply agreement, secured by a $1.5 million guaranty and a separate loan granted in June 2013 of about $1.4 million to cover conversion costs and gas bills that became past due as the company fell behind on its original timeline for accepting deliveries.
Cate Street on Monday appealed the arbitration award, asking for the $1.5 million guarantee of its natural gas purchasing contract to be revoked.
“XNG was awarded $4.6 million, even though it did not need to deliver a single dekatherm of compressed natural gas,” wrote Brian Champion, Cate Street’s attorney, in an appeal filed Monday. “In contrast to this exorbitant award to XNG, Cate Street Capital seeks a comparatively reasonable amount of relief from the court.”
Champion argued that a portion of the award is based on a faulty interpretation of the contract between Cate Street Capital and XNG.
The arbitration award issued in February and recently unsealed in Superior Court was issued against Cate Street Capital and subsidiary GNP Parent LLC. When the mill filed for bankruptcy, it was through separate corporations managed by Cate Street, GNP East and Great Northern Paper Co. LLC.
Matt Smith, an executive vice president for XNG, wrote in an email that the natural gas supplier “invested heavily” in the mill’s conversion to natural gas.
“We sincerely hope that the mill will reopen under new ownership, bringing jobs back to the families in the Millinocket region who have relied on that mill for steady employment,” Smith wrote. “We are committed to supporting those efforts, and continue to believe that natural gas can play an important role.”
The mill was purchased out of bankruptcy for $5.4 million by Hackman Capital, which said it has stopped marketing the property to paper makers and is seeking other redevelopment uses, likely related to the forest products industry.
XNG trucks its gas to customers as a bridge between a pipeline and an end user.
In XNG’s statement of claims to the arbitrator on April 25, the company stated that the mill initially planned to start using natural gas in March 2013. In August, mill owners and XNG arranged a $1.4 million financing deal to convert the mill’s boilers to use natural gas, which was completed later that year.
The mill began accepting natural gas shipments but in December 2013, when natural gas prices spiked, GNP refused to pay, according to XNG.
“XNG pointed out to GNP that the commodity price of [compressed natural gas] was not within XNG’s control,” XNG’s attorney wrote in its statement of claims to the arbitrator.
Following two days of arbitration hearings in December, Champion argued in a written brief that GNP should be released from the gas purchasing contract because the price spike of more than 600 percent made it impractical to satisfy the agreement.
In a brief following two days of arbitration hearings, Champion wrote that XNG “contributed to the financial strain on the Great Northern Paper Mill that ultimately led to its bankruptcy.”
XNG said it provided GNP notice of its default on Jan. 22, 2014, and on Jan. 31, 2014, sent GNP a demand for full payment and terminated its contract.
The contract, XNG wrote, called for the company to remove some of its equipment from the mill site within 60 days after the contract, but the company “refused to grant XNG such access.”
The request to review the arbitration award is now before Superior Court Justice Thomas D. Warren.