GVEA ends Healy pact

By Al Slavin
Fairbanks Daily News Miner
12/31/99

Golden Valley Electric Association has terminated a 35-year agreement to purchase $4 million worth of power annually from the Healy Clean Coal Project after the state-owned plant failed to meet ifs final deadline.

The move was prompted by an independent consultant's determination that results of a critical 90-day performance test were inconclusive and skewed by the presence of a larger-than-expected staff at the $270 million Healy facility.

The plant's developer, the Alaska Industrial Development and Export Authority, had until midnight tonight to establish the facility's commercial viability.

A final benchmark was the 90-day operating test, which was completed November 15. But using a higher grade of coal than originally anticipated biased the results and reduced the amount of fly ash by 23 percent according to Dennis Swan, senior vice president of Harris Engineering.

Swann also noted the presence of 17 contractors hired by AIDEA had significantly reduced downtime when equipment problems arose during the three-month test period.

After two years of contentious exchanges that eventually led to a lawsuit between GVEA and AIDEA, GVEA President and CEO Mike Kelly said Thursday he was terminating the power sales agreement and laying off his staff at the plant.

"They have not delivered on the plant that they promised," Kelly said. "This plant is a poster child for failure in several critical areas and I'm not going to stand hitched to it and have our members pay for the fix that's required to make it right." Kelly said. "We know the plant doesn't work and so does AIDEA."

Kelly said that his company had to lay off nine permanent employees and another 17 temporary employees who worked at Healy Generation project. He said the company is still willing to work with AIDEA, but not under the terms of the 10 year old agreement.

AIDEA Executive Director Randy Simmons said the contract provides for a possible remedy. That provision, reached in the construction agreement, allows for an independent consultant to suggest solutions if the plant has not reached commercial operating status.

We don't believe that we've failed yet." Simmons said. "But irrespective of what we believe right now, the provisions of the construction agreement do give us time. For that reason, we don't believe that GVEA has a right to terminate this agreement."

The Healy Clean Coal Project was one of the 40 projects created under the U.S. Department of Energy's Clean Coal Technology program. The goal was to develop cleaner methods for burning fossil fuels, particularly coal, and cut down on pollutants that produce acid rain.

AIDEA took the lead on the project, agreeing to develop the innovative technology. The Energy Department contributed $117 million to the project and the state legislature paid $25 million. The remaining portion fell to AIDEA's coffers. AIDEA had planned to recover its expense under the power sales agreement with GVEA.

The remaining hurdle was the 90-day operating test during which the 50 megawatt plant had to achieve 85 percent efficiency and exhibit long-term potential. While Swann stated that major systems performed in "accordance with design specifications and tolerances," that came as a result of burning a higher grade of coal.

The blend used during testing was 39 percent waste coal, and 61 percent run of the mine grade. Swann has questioned the plant's ability to sustain a long-term operation with the grade originally considered, 50 percent waste coal and 50 percent rune of the mine coal.

Simmons contends that AIDEA had no say over the quality of the coal, a charge that Kelly flatly denies. The coal was supplied by Usibelli Mine under an agreement reached between GVEA and Usibelli officials. The technology was designed with respect to the "dirty coal" found in the Healy area.

Clearly the plant was built as a waste coal facility and it was designed to burn up to 65% waste coal." Kelly said. AIDEA chose to use a higher BTU coal because they couldn't get this thing to run right on the specified coal.

Swann's report states that if the facility uses the 50 percent blend to fuel the plant, it will need to will need to redesign and rebuild the coal transport system at the nine-story facility located on the bank of the Nenana River.

Kelly said that a separate report, prepared for GVEA by Duke Engineering, raises several concerns regarding the plant's ability to operate safely within the confines of its environmental permits. He outlined these concerns in a letter sent Thursday to AIDEA officials and cited an explosion two weeks ago in one of the plant's coal pulverizers. Kelly said that no one was injured.

Three months ago, a similar explosion had occurred in a separate pulverizer. Kelly said this underscores concerns regarding the integrity of the plant's mill exhaust system and the overall operation of the coal handling system.

"It's not commercially viable and it also places our employees in a workplace situation that's not safe." Kelly said, who added that the next step was AIDEA's.

The facility is currently in the middle of a scheduled three-week shutdown. Simmons said that AIDEA contractors will continue to work with the technology at the plant. He said this action by GVEA could prompt another lawsuit, or possibly more filings in the existing case, which is scheduled for trial in March.

"I suspect when GVEA looks at the potential liability they have, they probably are going to be willing to sit down and look at this."