North of 60 Mining News - The mining newspaper for Alaska and Canada's North

After years of contentious debate, lawsuits and sporadic negotiations, the two major players involved in the Healy Clean Coal Project, an experimental coal-fired power plant built with $300 million in state and federal funds and shuttered since 2000, have terminated their relationship.

During a July 23 meeting in Anchorage involving the project's players as well as state politicians and Alaska Gov. Frank Murkowski, power plant owner Alaska Industrial Development and Export Authority formally announced that the state agency was rejecting a recent purchase offer from Golden Valley Electric Association.

"We let them know we are not going to make a counter offer and that we are moving forward with another plan for the Healy Clean Coal plant," said AIDEA spokeswoman Becky Gay, on Aug. 2. "It's a huge separation chapter."

On the same day Golden Valley, the only electric provider in Interior Alaska, signed a contract with contractor H.C. Price to build a new gas-fired power plant in North Pole. Due to be completed in April 2006, the fast-tracked power plant will produce up to 60 megawatts of electricity.

The experimental, shuttered coal plant in Healy was also constructed by H.C. Price and is designed to produce up to 50 megawatts of power.

Built with U.S. Department of Energy funds and state-issued bonds, construction was completed on the Healy Clean Coal Project in 1997. Disagreements between AIDEA and Golden Valley quickly surfaced during testing in 1998 and 1999.

Golden Valley pulled out of its power purchase agreement and the coal-fired plant has been mothballed since January 2000, costing the state agency about $9 million a year in maintenance and bond payments.

Severed ties

The electric provider issued a press release on Aug. 3, saying it is "reluctantly withdrawing its offer to purchase the Healy Clean Coal Plant… an offer that would have restarted the plant, provided energy and jobs in the Interior, and would have paid (AIDEA) $70 million over the life of the contract."

"AIDEA and the governor are unwilling to negotiate and have been uncooperative with the crucial permitting process, which leaves the co-op with no choice but to withdraw the offer," Golden Valley said, adding that the utility will focus its efforts elsewhere to provide power, pointing specifically to its contract to build gas-fired generation in North Pole.

"We have tried to work out a resolution and get HCCP up and operating over these many years. Apparently that is not going to work out the way we had hoped or intended," said Steven Haagenson, Golden Valley president and CEO, in the press release. "Presumably, the governor and AIDEA have a plan, and that's fine, as long as it doesn't impair our ability to serve and protect our members."

Golden Valley said it would work amicably to resolve lingering issues such as prior operating agreements and land leases "in a manner which protects the interests of GVEA's members. Beyond that, Golden Valley will have no further involvement with the mothballed experimental power plant."

Interior electric demand grows

While the Healy Clean Coal Project remains shuttered and Golden Valley begins building a new gas-fired plant in North Pole, Interior Alaska's economy continues to percolate, steadily growing the demand for electric power generation.

Golden Valley is facing a known load growth of 35 megawatts from the Delta Junction area alone, including 13 megawatts to supply the Pogo gold mine under construction and 16 megawatts of power to convert an oil pipeline pump station from diesel to electric.

The Interior Alaska electric system's existing peak demand of 192.9 megawatts is met by 228 megawatts of generating capacity controlled by Golden Valley. But of that generating capacity, only 183 megawatts is located in the Fairbanks area, and Golden Valley describes most of that equipment as aging.

Remaining power for the Interior comes from a 37-year old coal-fired plant owned by Golden Valley in Healy, from a coal-fired plant owned by Aurora Energy in Fairbanks or from the Alaska Intertie, connecting Fairbanks with power generation in the Anchorage area and as far south as Homer, 600 miles away.

Mining industry impacts

In past interviews, Golden Valley's Haagenson said his company could use both the shuttered Healy plant and a new facility in North Pole. Factoring into that need for power generating capacity is the ongoing development of the Donlin Creek gold project in southwest Alaska.

Developer Placer Dome has narrowed its consideration of options to provide up to 70 megawatts of electricity the large remote mine would require. One of three top considerations is tapping power from Alaska's Railbelt electric grid, most likely building a transmission line connecting Donlin Creek to the northern end of the Railbelt grid, within Golden Valley's coverage area.

Also impacted by the shuttered Healy Clean Coal Project is its supplier and Alaska's only coal producer, the Usibelli Coal Mine, which is also headquartered in Healy. Technology incorporated in the experimental Healy plant allowed for consumption of what is normally considered waste coal, thereby reducing the fuel costs to generate electricity and providing a market, albeit limited, for a product that is now buried in Usibelli's mine pit.

As designed, the Healy Clean Coal Project would consume 350,000 tons of coal a year, a considerable bump upwards of the mine's current production level of about 1.2 million tons.

Usibelli considered operating plant

At one time, Usibelli executives considered taking over the Healy Clean Coal Project and operating the facility, while leaving ownership in state hands. "We could consider operating it, but we can't take on the risks of the entire project," said Steve Denton, vice president of development at Usibelli.

Producing electricity is part of Usibelli's forte now, as the coal mine's subsidiary, Aurora Energy, purchased a coal-fired power plant in Fairbanks in the mid 1990s. Since then, Aurora Energy has operated the coal-fired plant, selling electricity to Golden Valley and providing steam heat to about 100 customers in downtown Fairbanks.

Usibelli first considered operating the Healy Clean Coal Project about three years ago, when talks had broken down between Golden Valley and AIDEA. "We were going through the due diligence when that whole effort got put on hold, when it was pulled off the table as an option," Denton said.

Usibelli spent some time and financial resources working on the proposal, including hiring consultants, Denton said. "It was not an insignificant amount of money, but it was mostly staff time that could have been spent working on other things," he said.

The state agency told the company to stop, because "it was no longer a scenario believed to be viable, or on the table for consideration," Denton said.

Usibelli would possibly reconsider that option, if requested by AIDEA, but "we would want to know up front, and not have the rug pulled out from under it," he added.

Offer rejected

Golden Valley and AIDEA resumed negotiations about the Healy plant in the fall of 2003, holding joint meetings with the boards of both entities. Golden Valley made a purchase offer in March 2004, an offer that AIDEA rejected in late May, "since it placed all transaction risks on AIDEA with little potential benefit to the authority," according to the state agency's website.

Golden Valley contends that its offer was "the best deal for all involved," according to a company information sheet. It proposed paying AIDEA up to $70 million for the plant over a 40-year period, paying $1.75 million per year after the plant became operational.

Golden Valley's purchase offer was also contingent on completion of a full retrofit of the Healy Clean Coal Project, which would change some of the experimental equipment to "environmentally equivalent, proven technology," similar to that in the older, operating Healy coal plant. Estimated cost for that additional work was $65 million, which could have come from a $125 million federal appropriation included in the pending U.S. energy bill. The remaining money could have been used to pay off some of the $85 million in bonds issued by AIDEA to raise its share of the initial construction costs, Golden Valley said.

"HCCP is fatally flawed by faulty design and unproven experimental technology, and continues to languish, as a result," Golden Valley said in its Aug. 3 statement.

Two options for Healy

Now, AIDEA is developing a "new focus" for the Healy plant, spokeswoman Becky Gay said.

"We're assessing the potential for new investors," she said, adding that a new public/private sector group could be formed to run the Healy plant "now they know the deal is not going through with GVEA."

Another option already has general support from Alaska's Railbelt electric utilities, which agree in principal with formation of a unified operating system on the Railbelt. A proposal outlined to the state Legislature this winter calls for ownership of the state's electric utility assets, including the shuttered Healy plant, the Bradley Lake hydroelectric plant and the Alaska Intertie, to be shifted to a unified operator.

According to a report by the Alaska Energy Policy Task Force, a unified operator would oversee operation and maintenance of existing power generation and transmission assets in the Railbelt, while planning, designing and constructing new facilities.

All six Railbelt utilities have met this summer to discuss creation of such an entity, and Golden Valley is one of three strongly supporting the concept. Gay said she expects a unified operating system to be created "within the next two years, certainly by the next five years."