Virginia Natural Gas is suing C4GT, the developer of a large proposed natural gas plant in Charles City County, for allegedly breaking the terms of an agreement over natural gas supply and failing to reimburse the utility for more than $2.1 million in costs.
“Although VNG has attempted in good faith to reach an amicable resolution with C4GT, C4GT has refused to engage,” the utility’s attorneys wrote in a Feb. 4 filing with the U.S. District Court for the Eastern District of Virginia.
As of March 12, however, C4GT had not responded to any filings with the court or a summons. On that day, the court entered a default against the company, a legal acknowledgment that a party has failed to reply to a complaint by a deadline.
C4GT did not immediately respond to a request for comment.
The legal action is the latest twist in a story that stretches back to 2016, when Michigan-based NOVI Energy formed C4GT, LLC, to develop and operate a natural gas plant in Charles City County.
Virginia regulators approved the plant’s construction in 2017, but the project quickly ran into financing delays and over the past two years has faced major opposition from local and environmental groups that have argued that further natural gas construction is incompatible with the state’s transition to renewable energy.
In October 2019, C4GT and Virginia Natural Gas entered into an agreement for C4GT to purchase natural gas from the utility. In turn, VNG sought to expand its infrastructure to accommodate the plant’s demand through what was called the Header Improvement Project. That December, the utility filed plans for the expansion with regulators, whose approval was needed for the project to proceed.
As a condition of the agreement, C4GT was required to finalize debt financing agreements with third parties to pay for the project’s development and construction by June 30, 2020. In what VNG describes as “a further safeguard,” the agreement also declared that if Virginia Natural Gas found that the project wasn’t “creditworthy,” C4GT would have to supply the utility with relevant financial information and could be asked to put up $3 million as “credit support.”
According to the lawsuit, if Virginia Natural Gas canceled the agreement because C4GT failed to meet its obligations or prove its financial viability, the plant developer would have to reimburse the utility for costs it incurred to further the project.
By spring 2020, however, the project was still struggling to get financing and developers asked Virginia Natural Gas to push back its June 30 deadline for financial close to December.
Those difficulties proved decisive in Virginia regulators’ decision to reject the utility’s infrastructure expansion without C4GT securing its financing.
In September, Virginia Natural Gas President Robert Duvall wrote a letter to C4GT saying the utility “has serious doubts as to the financial viability of C4GT’s project.”
But as the companies moved toward cancelation of their agreement, a dispute emerged: Virginia Natural Gas said C4GT was responsible for reimbursing the utility more than $2 million it had incurred in preliminary work for the Header Improvement Project. C4GT, in an October letter, disputed that calculation and argued that because the utility had decided to pursue a scaled-down version of its infrastructure expansion that excluded any supply to the proposed Charles City plant, the company owes nothing.
Several days later, Virginia Natural Gas pulled out of the agreement. The company later invoiced C4GT for $2.1 million in project costs, including engineering and environmental work it had done.
According to the utility, C4GT never paid the invoice. Two further demand letters, on Jan. 1 and Jan. 20, also elicited no response from C4GT, although the company did acknowledge having received the first correspondence.
“Despite several requests for payment in writing, and the extension of numerous courtesies and invitations to engage in dialogue to avoid litigation, C4GT has wrongly refused to make payment,” Virginia Natural Gas wrote in a court filing. “As of the date of the filing of this complaint, VNG has used and exhausted its best efforts to informally resolve, by mutual agreement, C4GT’s failure to pay the customer reimbursement amount.”
The utility is asking for the court to order the payment of “all damages sustained as a result of C4GT’s breaches” of its agreement with Virginia Natural Gas.
Virginia Natural Gas spokesperson Rick DelaHaya said in an email that the utility cannot comment on ongoing litigation.
Despite the litigation and the rejection of the Header Improvement Project that would have supplied the natural gas necessary to run the plant, C4GT has not canceled the project. In December, on the day its construction permit from the state’s Department of Environmental Quality was set to expire, the company hastily poured concrete for a fire pump house and installed silt fencing to avoid losing its permit.
This week, as the case remained stalled in the courts, Virginia Natural Gas also announced it was withdrawing its application for the scaled-down version of pipeline expansion it had put forward in the wake of the Header Improvement Project after a customer terminated its agreement for gas supply from the company.
“Customers come to VNG when they need service and it is our obligation to serve them,” said VNG President Duvall in a statement. “One of the customers for this project is no longer asking for new pipeline capacity, which prompted us to cancel the project.”
However, the statement continued, “the decision to withdraw the application in no way diminishes the need to improve operational capability and overall reliability of the natural gas pipeline system.”