Published: October 30, 2017 |

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In a win for Millennium Bulk Terminals, a Cowlitz County judge has ruled that the Department of Natural Resources unfairly denied a sublease needed for the company’s $680 million Longview coal terminal.

Superior Court Judge Stephen Warning said Friday that DNR acted in an “arbitrary and capricious” manner in January by rejecting Millennium’s request to sublease state aquatic lands for new docks in the Columbia River.

However, Warning stopped short of actually granting Millennium the sublease. Instead, he ordered the parties to propose their own remedies — which may send DNR, Millennium and the primary holder of the lease, Northwest Alloys, back into negotiations. Warning did not give the parties a deadline.

Even without a clear sublease in hand, Millennium officials claimed victory.

“The judge reaffirmed that the DNR commissioner’s (Goldmark) decision was arbitrary and capricious,” said Wendy Hutchison, vice president of public affairs for Millennium. “For us, obviously we’ve been working very hard on this site and trying to do the right things. We just want fair treatment under the law. Goldmark’s decision was unfair.”

But coal opponents pointed out that Millennium still will need the sublease and to overcome other hurdles before it can build the terminal at the former Reynolds Metals Co. site.

“Obviously, we’re disappointed and we disagree with the judge’s decision,” said Kristen Boyles, attorney with Earthjustice, which is intervening in the case on DNR’s behalf. “I don’t think this is much of a win for Millennium. They still don’t have a sublease that they need to operate.”

DNR’s attorney Terry Pruitt said he is unsure whether the state agency will contest Warning’s decision.

Millennium, which already operates one dock, wants to build two additional 220-foot-long docks on 58 acres of state aquatic land already leased by Northwest Alloys.

For seven years, the three parties tried to negotiate a deal to allow Northwest Alloys to sublease the aquatic lands to Millennium, but former State Lands Commissioner Peter Goldmark denied the sublease days before leaving office in January. Goldmark argued that Northwest Alloys and Millennium did not provide enough information about Millennium’s finances or about Millennium’s sole owner, Lighthouse Resources.

Goldmark also questioned Millennium’s financial viability in the wake of volatile coal markets and the bankruptcy of its former part-owner, Arch Coal.

The former lands commissioner also cast doubt on Millennium’s credibility. He pointed out that the company first applied for permits to handle 5.7 million tons of coal annually, but later it was revealed that Millennium actually intended to eventually handle 20 million to 60 million tons. In 2011, Millennium had to resubmit its permit application and now says it wants to handle 44 million metric tons of coal.

Tim Hobbs, Millennium’s attorney, argued that it was unfair for DNR to question Millennium’s credibility after the permit debacle in 2011, because the company is under new management. As a landlord, DNR has had seven years to observe Millennium on site, during which time it “cleaned up a mess left by a prior subtenant,” Chinook Ventures, and has operated responsibly and fulfilled its financial obligations, Hobbs said.

He argued that Arch Coal’s bankruptcy actually helped Millennium by ridding it of a “bankrupt corporate owner” leaving it with “a single owner that had doubled down on its commitment” to the project.

At the same time DNR was requesting more information about Millennium’s finances, it was simultaneously offering written comments against the project to the state Department of Ecology, Hobbs pointed out.

“It appears that DNR was looking for reasons to deny consent (to sublease),” Hobbs said.

Hobbs also argued DNR “relied on non-relevant market information” when assessing the state of the coal industry. The agency did not look at market data for the specific type of coal Millennium would export — steam coal — a market Hobbs said actually is projected to grow, according to an Energy Information Association analysis.

DNR countered Hobbs’ assessment of the coal market.

“2015 was the worst year in decades for the coal industry in terms of coal production,” Pruitt said. And energy outlooks suggested that 2016 would be even worse, and that there wouldn’t be any significant recovery in 2017. “There’s no significant rebound back to the good old days here. This is not a rosy outlook for coal,” Pruitt said.

Given the dire state of the coal market and Arch Coal’s bankruptcy, Pruitt argued that “DNR acted reasonably in requesting business and financial information of proposed subleasee, Millennium. It would be reasonable for any landlord to request that.”

Warning said Millennium’s failure to provide audited financial statements is irrelevant because its financial troubles were already known: It had no major source of revenue; its former owner, Arch Coal, was bankrupt; and it was owned by a single company facing challenging market conditions.

“It seems in terms of the request the financial statement, well everyone knew it was going to look miserable,” Warning said. “You got an outfit that’s bleeding cash and has no revenue whatsover. ... That’s the obvious point. What would an audited financial statement — confirming what was clear — what would that add?”

Warning shared DNR’s concerns about Millennium’s previous permitting error. “That was the pretty significant self-inflicted wound. ... They just about shot their foot off,” Warning said.

But the judge noted that the two sides had reached a tentative sublease agreement in February 2015. At the time, DNR did not raise concerns about the permitting mistake, so it could not reasonably use it deny a sublease now, he argued.

Even if Millennium prevails in the case, it faces another legal hurdle with DNR because the new public lands commissioner, Hillary Franz, on Tuesday rejected a request to build the Millennium docks on the state’s aquatic land. Under a lease agreement, Northwest Alloys must obtain authorization from the state before it builds any news structures on state aquatic lands.

Franz stated that Northwest Alloys failed to provide DNR with essential information it requested and cited the state Department of Ecology’s decision to deny a water quality permit for the project, which Millennium is challenging in court.

Northwest Alloys has 30 days to appeal Franz’s decision in Cowlitz County Superior Court. Alternatively, it could resubmit its request in the future if Millennium secures its aquatic lands sublease and the necessary permits for the docks. Millennium officials said they’re still considering their response to Franz’s decision.

Source: TDN.com

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