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HEA offer could restart Healy plant

Posted: Friday, June 13, 2008

Homer Electric Association has expressed willingness to turn over all or part of its rights attached to the Healy Clean Coal Plant to a Fairbanks-based utility in return for financial help covering the costs of continuing to generate power with natural gas rather than coal.

HEA says such a shared fuel arrangement with Golden Valley Electric Association (GVEA) could allow HEA to build a new gas-fired generation plant, which HEA officials believe would result in lower and more stable energy rates for its 20,000 members, HEA spokesman Joe Gallagher said Wednesday.

Golden Valley was not prepared to deliver a response Thursday.

"Our board has not had time to meet to review or evaluate the HEA offer, so we have no comment now," said GVEA Public Relations Officer Corinne Bradish. "We will look at it to see if it is in the best interest of Golden Valley members."

Whether officials with the Fairbanks utility will see HEA's offer as a way around complicated legal issues between GVEA and the plant's owner, the Alaska Industrial Development and Export Authority, remains to be seen.

Construction on the Healy plant began in 1995 on land owned by GVEA with about $297 million in state and federal funds and bonds. GVEA was a partner in the U.S. Department of Energy sponsored project that was supposed to demonstrate viability of new coal-burning technology and deliver some 50 megawatts of reliable, low-cost power. GVEA claimed, however, that operational tests showed the plant could not live up to expectations. AIDEA disputed those findings.

That and other issues led GVEA to sue AIDEA for breach of contract in 1998, matters eventually addressed in a settlement agreement signed in 2000. But elements of that agreement and subsequent events often put the two sides at odds.

In 2005, AIDEA sued GVEA over ground lease differences alleging GVEA had breached and voided the settlement agreement. Soon afterward, the utility and AIDEA entered mediation, which continues. The plant remains in mothballs.

In November 2006, HEA signed a Project Development Agreement and a Power Sales Agreement with AIDEA, through which HEA would restart the clean-coal facility, and by Jan. 1, 2014, begin purchasing the plant. But the ongoing litigation between AIDEA and GVEA, has delayed a restart, Gallagher said.

HEA Board President Dave Carey wrote to GVEA board members calling the Healy plant "a valuable, viable asset" that could start producing power in the near future if the dispute between AIDEA and GVEA could be resolved. He said HEA was prepared to work with GVEA to make that happen.

Carey said HEA would be willing to assign all or part of its contract rights to GVEA, giving GVEA the right to restart the coal plant, operate it and receive the power. In exchange, HEA wants GVEA's help offsetting potential costs HEA might incur generating power using natural gas rather than coal.

Gallagher said HEA believes the idea benefits both utilities.

GVEA would have immediate access to the coal plant and the ability to put low-cost power on line quickly, thus reducing its fuel costs and turning those savings over to its customers. A cooperative agreement with GVEA could allow HEA to build a new gas-fired generation plant and live up to its promise to AIDEA to deliver lower cost energy, Gallagher said.

Considering the lack of movement in the dispute between AIDEA and GVEA, Gallagher said, "This looked like an offer we wanted to put out there to basically move things along."

The details of the litigation were known to HEA prior to its becoming involved with the plant two years ago, but finding a resolution has taken longer than anticipated, he said. HEA ultimately wants to see the coal plant up and running and considers its offer a faster path toward that end, he added.

"This is a starting point. HEA looks forward to discussing this in further detail with GVEA," Gallagher said.

Hal Spence can be reached at hspence@ptialaska.net.



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