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Alaska utility’s geothermal loan delayed Naknek Electric Association needs $1.5 million for well work, but some members oppose new debt for co-op now in bankruptcy Wesley Loy For Petroleum News
Naknek Electric Association is running into some resistance in its effort to borrow more money to continue a troubled geothermal drilling project.
The small Southwest Alaska electric cooperative, which in September filed for Chapter 11 bankruptcy protection from creditors, wants the court to approve a $1.5 million loan to finish work on an exploratory geothermal well.
But after a Nov. 24 hearing in Anchorage, U.S. Bankruptcy Judge Donald MacDonald held that NEA’s motion for the loan could not be approved “based on the facts that have been presented,” said a court memo on the hearing.
MacDonald set another hearing on the matter for 2 p.m. Dec. 6.
How much debt? Co-op members, at a special meeting scheduled for Dec. 4 in King Salmon, were to vote on whether NEA should raise its debt limit.
Cost overruns and other problems have plagued the geothermal drilling program, pushing the co-op into bankruptcy. NEA mounted the geothermal project in hopes of finding an alternative to expensive diesel for generating electricity.
Court papers indicate NEA already has almost $50 million in debt and vendor liabilities. Yet the co-op’s articles of incorporation specify its indebtedness should not exceed $25 million.
Because the co-op aims to borrow many millions of dollars more to continue drilling wells and build a geothermal power plant, NEA’s leadership scheduled the special membership meeting to vote on amending the articles of incorporation to increase the debt limit.
Court papers NEA filed Oct. 29 said the membership appears to remain supportive of the geothermal project, despite the bankruptcy.
The papers also said NEA believes it can execute the $1.5 million loan regardless of how the members vote.
NEA said it needs the money to clean out drilling fluids and test its geothermal well, and to prepare an application to the U.S. Department of Agriculture’s Rural Utilities Service for a $41 million loan guarantee.
The membership meeting promised quite a debate, judging from the letters filed with the bankruptcy court prior to the Nov. 24 hearing.
Several dozen members signed a letter objecting to the $1.5 million loan, saying the NEA board violated the debt ceiling and members weren’t kept informed about the problems with the geothermal project. The letter expressed concern about rate increases to repay additional debt.
Others, however, urged approval of the loan.
David Lax, of Naknek, was among the supporters.
“I believe that NEA sits on the verge of having the final information it will need to finance, design, and construct a working geothermal plant,” Lax said in a Nov. 23 letter to the court. “The management of NEA, with the approval of the members, has slogged through the mud to a potential source of geothermal energy that could rid us of our dependence on diesel fuel and its unstable pricing structure.”
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