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$1.5 million Naknek Electric loan OK’d Southwest Alaska utility, in bankruptcy, aims to finish its first geothermal well, drill up to six for alternative energy project Wesley Loy For Petroleum News
With encouragement from its ratepayers, the troubled Naknek Electric Association plans to take on new debt to continue with its geothermal energy project.
Members of the small Southwest Alaska cooperative voted in favor of raising NEA’s debt ceiling to accommodate additional borrowing, a lawyer for the utility reported at a Dec. 6 hearing in U.S. Bankruptcy Court in Anchorage.
NEA, which in September filed for Chapter 11 protection from creditors, plans to borrow $1.5 million from one of its lenders to complete work on its initial exploratory geothermal well.
Down the road, the co-op intends to seek much more financing to drill further wells and install a geothermal power plant.
NEA’s goal is to find an alternative to the expensive diesel it ships in to fire its electric power generators.
But the pursuit of that goal has been anything but easy, as cost overruns and other problems forced the utility into bankruptcy.
The co-op serves the villages of King Salmon, Naknek and South Naknek, including some of Bristol Bay’s big salmon processing plants.
Vote of confidence To remove any cloud over whether NEA could take on more debt, its leadership held a special meeting on Dec. 4 in King Salmon to ask the co-op members to amend the utility’s articles of incorporation, which specified a maximum debt level of $25 million.
With almost half its 600-plus residential and business members submitting ballots, the amendment passed overwhelmingly by a vote of 214 to 75.
NEA’s board of directors then voted to reaffirm its July 2010 resolution to raise the debt limit to $75 million.
The membership vote was gratifying to NEA General Manager Donna Vukich, who spoke with Petroleum News after the Dec. 6 bankruptcy hearing at the old federal courthouse in downtown Anchorage.
“We knew there was a silent majority,” she said. “We will continue to work with those in opposition.”
On Dec. 7, Bankruptcy Judge Donald MacDonald issued an order approving the $1.5 million loan, which evidently had the support of many of NEA’s major creditors.
NEA’s immediate task is to clean the geothermal well so its true temperature and flow can be tested. This means air lifting a column of water to flush out cuttings and drilling mud clogging the formation.
To do the job, NEA and its contractors determined that stronger equipment was needed, including two air compressors and other gear to be trucked from Texas to Anchorage and then flown to the G-1 well site northeast of King Salmon.
NEA purchased a drilling rig for its geothermal campaign, and the rig remains over the 10,433-foot well.
The National Rural Utilities Cooperative Finance Corp., a private, nonprofit lender based in Herndon, Va., financed the rig purchase and will extend NEA the $1.5 million loan to clean the well.
Long-range plans NEA has filed a “construction work plan” with the court for the period 2010 to 2013 outlining the co-op’s plans for adding geothermal generation to its electric system.
The co-op began looking at geothermal several years ago, as the boundary of the volcanic Katmai National Park and Preserve is just a few miles from NEA’s electric lines.
NEA initially aims to build a geothermal plant with up to 10 megawatts of output capability.
“Discussions have been occurring relating to the number of geothermal wells needed to satisfy the requirements of NEA,” the work plan says. “The clean out and testing of G-1 will provide the necessary information to make the assessment. If the well has a high flow and the temperature is in the expected range of 260° F or better, the system should provide adequate fluid for the power requirements. This scenario should supply the power with two production wells and one injection well. If flow does not meet those expectations and G-1 has lower flows, then up to six wells may be needed to supply a power plant, which would involve four production wells and possibly two injection wells.”
In a Nov. 21 court filing, NEA said the G-1 well cost more than $25 million, and the work plan assumes a total cost for the geothermal project of $80 million.
The filing said NEA intends to apply for a $52 million loan guarantee from the U.S. Department of Agriculture’s Rural Utilities Service. Previously, NEA said it would apply for a $41 million guarantee.
NEA has received considerable moral support for its geothermal effort.
Marilyn Leland, executive director of the Alaska Power Association, a trade association for many of the state’s electric utilities, commended NEA in a Dec. 3 letter for pursuing a renewable energy supply. The letter said the difficulties the co-op has faced in trying to make a go of geothermal include “onerous regulatory requirements imposed on NEA in order to secure funding for the project.”
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