HEA, coal plant part ways

Posted: Thursday, July 23, 2009

Any chance of Homer Electric Association being involved with the restart of the Healy Clean Coal Plant has disappeared.

The Alaska Industrial Development and Export Authority is officially terminating its agreement with the HEA, which was signed by both parties in November 2006.

Three years ago, HEA signed a Project Development Agreement and a Power Sales Agreement with AIDEA, through which HEA would restart the facility, and by Jan. 1, 2014, begin purchasing power from the plant. However, ongoing litigation between AIDEA and Golden Valley Electric Association has delayed a restart.

On Monday, AIDEA gave its intention to terminate that agreement. It will take effect August 20.

The decision comes two months after HEA's board of directors voted to shift its focus away from the Healy project and search for future power sources elsewhere.

Despite HEA reneging on its commitment to purchase half of the energy produced by the plant, AIDEA said it will move forward with the project.

"Our objective remains the same, and that is to get the Healy Clean Coal project online," said AIDEA spokesperson Karsten Rodvik. "In order to proceed with our goal, we had to issue that termination so that we can proceed with Golden Valley.

"We just cannot sit here and do nothing," he added.

Like AIDEA, Golden Valley isn't letting HEA's decision prevent it from restarting Healy.

Kate Lamal, GVEA's vice president of power supply, said with HEA out of the picture, the Fairbanks utility plans to take all of the power from Healy.

"If we want to get anything out of the plant, we are going to have to take it all and then do something with it," she said.

GVEA still plans to have the plant operational and can do so without HEA, Lamal said.

According to the terms agreement, which HEA, AIDEA and GVEA signed in January, HEA would purchase half of the energy produced by the plant, starting in 2014, for 25 years or the economic life of the plant, whichever is longer. The plant has a potential lifespan of 50 years.

Based on the terms agreement, which is not a contract, HEA has until August 1 to finalize a deal, or the signed terms will become null and void.

In May, HEA board vice president Tim Evans made a motion to direct General Manager Brad Janorschke to cancel a power supply study and transition the cooperative away from its involvement with HCCP. The board passed the motion on an 8-1 vote.

However, AIDEA and GVEA both said they never received a clarification from HEA what it meant by "transitioning the cooperative away from its involvement with HCCP."

"We received nothing that indicated that they wanted anything to do with the Healy Clean Coal project," Rodvik said. "We got nothing in return that clarified what the HEA board action intended or meant."

Though the Healy plant is now part of HEA's past, the agreements remain legitimate and the utility must protect itself for the time being, said HEA spokesman Joe Gallagher.

"HEA is transitioning away from the Healy project, but the agreements between HEA and AIDEA, dating back to 2006, are still valid and define the legal relationship between HEA and AIDEA," Gallagher said in an e-mail. "HEA wants to make sure it is treated fairly in the transition process. The notice of termination from AIDEA will be reviewed by the board at its August 11 meeting."

Construction on the Healy plant began in 1995 on GVEA-owned land with about $297 million in state and federal funds and bonds. GVEA was a partner in a U.S. Department of Energy sponsored project, which was supposed to demonstrate the viability of new coal-burning technology and deliver approximately 50 megawatts of power.

However, GVEA said 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. Parties eventually settled two years later.

But components of that agreement and events that followed often put the GVEA and AIDEA at odds.

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

Besides outlining the sales agreement, the January terms sheet would have also ended litigation between the feuding parties, should it have become a contract.

HEA still plans to operate independently come 2014, after its contract with Chugach Electric ends.

"We still have that time line in front of us and are working diligently to meet that time line," Gallagher said.

As it stands now, AIDEA and GVEA will have to move forward without HEA.

"At this point, there is not a third party," Rodvik said. "In terms of the process that we began it boils down to AIDEA and GVEA to proceed.

"It's in Alaska's best interest that this move forward," he added. "If HEA has decided to take another direction, we have no choice but to clean this situation up and proceed."

Mike Nesper can be reached at mike.nesper@peninsulaclarion.com.



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