Co-op, state advance deal on coal-fired power plant

Posted: Sunday, February 15, 2009

FAIRBANKS - Golden Valley Electric Association and the Alaska Industrial Development Export Authority have signed another agreement that calls for working out the sale of an experimental coal-fired power plant near Healy by Aug. 1.

State Department of Revenue Commissioner and AIDEA board chairman Pat Galvin said the second-phase deal over the Healy Clean Coal Project was the result of a month of negotiations.

"This is a sequential deal where we are refining the terms as we move forward, recognizing it is a fairly complex issue," Galvin said.

If the deal is not done, Golden Valley, a rural power cooperative based in Fairbanks, and the state could resume litigation.

The Healy plant was built in the late 1990s as an experimental "clean coal" technology plant with state and federal funds. The plant has not operated since 2000. Critics say it never produced power that could be sold commercially.

GVEA and the state have been in a dispute over the plant for almost 10 years. GVEA and the Alaska Industrial Development Export Authority, a quasi-state agency that assists in financing to promote economic growth and diversification, announced a settlement in January that halted litigation scheduled for trial June 1.

The deal signed Friday is an asset sale agreement.

GVEA CEO Brian Newton compared the process of stepped agreements to buying a house, a deal brokered in stages.

The agreement detailed the purchase plans, arranges a schedule and sets protocol for transferring documents.

Also involved is the Homer Electric Association, which acquired plant operations rights from AIDEA even as ownership and control were being negotiated with GVEA.

The state is agreeing to sell the plant to the Tri Valley Electric, a subsidiary of GVEA, for $50 million. The state authority will finance the purchase price at 5 percent interest over 25 years. The state also will offer a $45 million loan at 6.5 percent interest over 25 years to help GVEA with restart costs.

GVEA estimates $300 million and up to two years will be needed to bring the plant on line.

GVEA will start paying off debt when the plant starts generating power or on Jan. 1, 2014, whichever comes first. GVEA's Tri Valley will sell half the power generated to Homer Electric Association and half to GVEA.

Newton said creating Tri Valley Electric to own and operate the Healy plant was a business decision.

"It saves the members money if we put it into a wholly owned subsidiary," he said.

A separate entity can realize lower profit margins than GVEA, he said. The utility's lenders mandate higher rates. Newton estimated savings of $2 million annually by creating Tri Valley.

GVEA would buy power from Tri Valley under contract, so rates could be adjusted every three months on members' bills. Coal-fired power can fluctuate in cost but probably not as much as diesel-fired power has, Newton said.

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