Offer for coal plant rejected by state agency

AIDEA turns down purchase offer from Golden Valley Electric for Healy Clean Coal Project

Patricia Liles

Petroleum News Contributing Writer

Golden Valley Electric Association’s $70 million offer to purchase the shuttered, experimental coal-fired power plant in Healy, Alaska, has been turned down by board members of the Alaska Industrial Development and Export Authority.

GVEA’s board members learned of their rejected offer during a meeting with the state agency’s board members on April 30, according to Kate Lamal, vice president of power supply for GVEA.

“They did not like our offer. There was no counter-offer, no alternative offered,” she told Petroleum News on June 2. “They are continuing to work on permitting a retrofit (of the experimental plant.)”

AIDEA’s Executive Director Ron Miller told Petroleum News on June 3 that board members did not see “any substantial benefit to AIDEA” from GVEA’s offer. “There were too many continguencies, and we feared that AIDEA might have to pay out of pocket for Golden Valley to take over the power plant.”

He also said the annual payments offered by GVEA would only be paid if the plant was generating electricity, and that AIDEA’s continued warranty and liability of the plant’s operation was not acceptable.

After nearly a year of joint board meetings to discuss the lengthy legal debate about ownership and operation of the Healy Clean Coal Project, GVEA submitted a purchase offer on March 19 to AIDEA. That state agency owns the $300 million-plus Healy Clean Coal Project, built mostly with federal and state funds during the mid-1990s. The 50-megawatt experimental plant is located outside of Healy, adjacent to a 25-megawatt coal-fired plant owned and operated by GVEA since 1967.

In its purchase offer, GVEA agreed to pay AIDEA $70 million for the plant over a 40-year period, paying $1,750,000 per year after the plant became operational.

The Healy plant has been shut down since January 2000 after conclusion of a 90-day test period, used to evaluate performance, reliability and safety of the experimental technology.

AIDEA has spent about $9 million a year on the plant since construction was completed in 1997, according to a former project manager. That includes debt payments on the bonds and about $3 million a year to keep the plant in standby mode.

GVEA’s purchase offer was contingent on completion of a full retrofit of the plant, which would change out some of the experimental technology to “environmentally equivalent, proven technology,” similar to that in the smaller, operating Healy coal plant, Lamal said. Estimated cost for that work was $65 million.

Collaborative work to obtain an emissions permit from the Alaska Department of Environmental Conservation for the retrofitted plant is continuing, an effort that Lamal said began in earnest in February with encouragement from Alaska Gov. Frank Murkowski.

While not designated in the GVEA purchase offer, one potential source for the retrofit funding is a $125 million federal appropriation included in the pending U.S. energy bill. The remaining amount could be used to pay off some of the $85 million in bonds issued by AIDEA to raise its share of the initial construction costs.

“When you make an offer for something that’s for sale and they say no, what do you do? We’re building North Pole,” Lamal said. “We have the ability to go two-on-one at North Pole.”

GVEA plans North Pole power plant

“We don’t have a signed contract yet, but we’re working out the details on the equipment,” Lamal said. That decision was not dependent on AIDEA’s rejection of the HCCP offer, she said on June 3.

“We’ve been working on that project for more than a year.” GVEA’s board decided to spend $75 million for the naphtha-fired power plant, selecting a one-on-one configuration, according to GVEA spokeswoman Corinne Bradish.

It will consist of a 47-megawatt simple circuit generator and a 13-megawatt steam turbine. The design allows GVEA to add a second 47-megawatt gas-fired generator, which, if combined with the steam turbine in a two-on-one configuration, will produce 120 megawatts of electricity.

Construction of that facility should begin in late June, and be complete in early 2006. It will be located adjacent to GVEA’s existing 120-megawatt heavy atmospheric gas oil fired power plant that operates within the security confines of Alaska’s largest oil refinery, now owned by Flint Hills Resources. North Slope crude oil is tapped from the nearby trans-Alaska pipeline system and distilled, providing gasoline, jet fuel, diesel and fuels for electric generation in Interior Alaska.