MAXIM advances Milner gas project; mulls sale of Alberta coal projects

Maxim Power Corp. (TSX: MXG) said March 18 that a conversion of the planned Milner expansion project in Alberta, Canada, from a coal-fired to a gas-fired project is one of several projects it has underway.

The Alberta Utilities Commission on March 18 went out for comment on a proposed change in a prior approval allowing MAXIM to switch from a new 500-MW coal unit at the coal-fired Milner plant, to a 520-MW, two-unit, gas-fired project. Milner currently consists of a 150-MW coal unit.

During the fourth quarter of 2012, MAXIM appointed financial advisors to review its investments in the U.S. and France in order to identify options to maximize shareholder value, MAXIM noted in a March 18 earnings statement. Several offers were received for both of these investments that were not compelling. MAXIM said it will continue to operate these businesses as usual, work to bring the previously reported Federal Energy Regulatory Commission inquiry to resolution, and investigate further sales opportunities as they arise.

In December 2013, MAXIM announced that Patriot Power Holdings LLC, an affiliate of Rockland Capital, issued a notice to MAXIM to terminate the agreement to purchase 100% of MAXIM’s ownership interest in Maxim Power (USA) Inc. (MUSA) due to an outstanding regulatory inquiry by FERC related to MAXIM’s offers to supply electricity to the ISO New England market. “This process is continuing and MAXIM is fully cooperating with FERC,” the company said in the March 18 statement. “No formal proceedings or claims have been commenced against MAXIM and MAXIM is uncertain as to the timing and outcome of this process (‘FERC Inquiry’). As a result, the MUSA segment, which was previously recognized as an asset held for sale as well as a discontinued operation, is now recognized as part of MAXIM’s continuing operations.”

The MAXIM power plants to be sold to Patriot were:

  • The Basin Creek Generating Plant, a 55-MW gas-fired facility located in Silver Bow County, Mont., in the NorthWestern Energy balancing authority area (BAA).
  • The Forked River Generating Plant, an 87-MW gas-fired combustion turbine plant located in Queen County, N.J., in the PJM Interconnection BAA.
  • The Pittsfield Generating Plant, a 181-MW combined cycle plant located in Pittsfield, Mass. in the ISO-NE BAA.
  • The Pawtucket Generating Plant, a 64-MW natural gas-fired combined cycle cogeneration plant located in Pawtucket, R.I., in the ISO-NE BAA.
  • The CDECCA Generating Plant, a 62-MW natural gas-fired combined cycle cogen plant located in Hartford, Conn., in the ISO-NE BAA.

MAXIM has several growth projects in the works

In the area of growth initiatives for the company are:

  • Summit Coal Limited Partnership – SUMMIT is MAXIM’s development initiative located north of Grande Cache, Alberta, that owns metallurgical coal leases for Mine 14 (M14) and Mine 16S (M16S). This initiative is construction ready and is the most advanced metallurgical coal mine development project in North America. Current estimates for M14 are 18.9 million tonnes of low-mid volatile met coal reserves with a mine life of 17 years. The coal quality of M14 has been tested by numerous potential buyers and independent labs and is a very coveted mid to low volume coking coal with other attributes which are best in class. The corporation considers the advancement of the M14 and M16S development projects strategic for MAXIM primarily because of the value of metallurgical coal and partially due to Milner’s ability to utilize tailings and lower quality fuels, which are by-products of the beneficiation of coal, to produce electricity. All monetization options are being considered, including: construction, own and operate; joint venture; or outright sale.
  • Deerland Peaking Station (D1) – MAXIM is actively pursuing commercial arrangements that will allow for the full-scale construction of the 190-MW D1 Station to commence during 2014. In 2012, MAXIM entered into an agreement to secure firm natural gas transportation services for D1. MAXIM had previously received needed regulatory approvals. The D1 site is located near Bruderheim in Alberta’s Industrial Heartland, in close proximity to the entry point of the proposed Gateway pipeline and adjacent to the existing Deerland high voltage substation. This area is expected to experience significant growth in electrical demand. D1 is the only permitted peaking development project in the province of Alberta as of March 18, the company said. Costs will be incurred in 2014 for engineering and construction work in order to further develop the project. All monetization options are also being looked at here, including: construction, own and operate; joint venture; or outright sale.
  • Milner Expansion (M2) – The Alberta Utilities Commission (AUC) has granted MAXIM approval to develop a 500-MW coal facility adjacent to the existing 150-MW generating facility (M1). In September 2012, the Government of Canada enacted new greenhouse gas legislation that limits the amount of CO2 emitted by coal-fired facilities. As a result of the new greenhouse gas legislation, in November 2013, MAXIM submitted amendments for the existing M2 permit that would convert the M2 fuel source from coal to natural gas. MAXIM expects approval of these submissions by the second quarter of 2014.
  • Buffalo Atlee (B1) – MAXIM acquired the B1 Power Project, situated near Brooks, Alberta, through an amalgamation with EarthFirst Canada Inc. This project has the potential for development of over 200 MW of wind capacity. Wind data has been collected on the site for approximately six years and supports project development based on expected new provincial greenhouse gas legislation and/or higher power prices than currently forecasted. MAXIM holds an exploratory Crown land permit with a term of five years, expiring on Jan. 1, 2016.

Existing Milner coal unit has ongoing emissions issues

That 2012 Canadian CO2 control regime not only killed the Milner expansion as a coal facility, but it is also a long-term danger to the existing 150-MW coal unit at the Milner site. These new regulations limit CO2 emissions for power plants commissioned after July 1, 2015, to 420 tonnes for each gigawatt hour produced. In addition to this, power plants built before 1975 are able to operate at full capacity until the earlier of 50 years after the commissioning date and Dec. 31, 2019. Moreover, power plants built after 1974 are able to operate until the earlier of 50 years after the commissioning date and Dec. 31, 2029.

The Milner existing Milner coal facility was commissioned in 1972, and accordingly, is allowed to operate to its full capacity to Dec. 31, 2019. After that, Milner is allowed to operate at an annual capacity factor of up to 9%, which is approximately 113,500 MWh per annum, until Dec. 31, 2029, based on its current CO2 emission levels.

In 2012, and previous to that year, MAXIM was able to procure and generate NOx credits at the Milner facility. As of Jan. 1, 2013, MAXIM has commenced consumption of these credits. Under current legislation, MAXIM anticipates fully consuming these credits during 2015 and will identify alternative options of mitigation thereafter. The rate of consumption of these credits is driven by coal-fired generation and as such may fluctuate given changes in the levels of production and the fuel source used for production at Milner.

MAXIM also has been able to generate SO2 credits at the Milner facility up to Dec. 31, 2012. Under current legislation, MAXIM anticipates that these credits would not be exhausted until beyond 2020. Similar to the NOx credits, the consumption of these credits is driven by coal-fired generation and may fluctuate given changes in the levels of production and the fuel source used for production.

Also of note from the company:

  • On Feb. 5, ISO-NE announced the conclusion of the Forward Capacity Market (FCM) auction. The amount paid to existing power system resources commencing in June 2017 will be US$7.025/kW per month, which is an increase from the current rate of $2.951/kW per month. As a result, higher capacity rates will have a positive impact on the results of MAXIM’s three natural-gas fired facilities in the region. The CDECCA, Pittsfield and Pawtucket facilities currently receive monthly capacity payments along with electrical generation revenue at the spot price from the ISO-NE. The CDECCA facility also provides steam and chilled water under a long-term contract with the State of Connecticut until 2019.
  • “Natural gas prices in Alberta are expected to increase during 2014,” the company reported. “This increase in natural gas prices would result in MAXIM utilizing more lower-cost coal from its inventory pile. The use of coal would have a positive impact on fuel costs at Milner as well as reduce MAXIM’s cash requirements by using existing inventory and purchasing less natural gas. MAXIM will continue to evaluate its fuel blend and use more coal when it is economically prudent to do so.”
  • “In the Northeast U.S., growing demand for natural gas as a fuel for power generation, as well as constraints on existing gas pipeline infrastructure, have increased natural gas price volatility during periods of peak gas consumption,” the company said. “This volatility is expected to have a positive impact on MAXIM’s power plants as energy margins are positively correlated to natural gas prices, resulting in higher margins at higher gas prices. Natural gas price volatility is expected to persist until natural gas supply constraints in the region are addressed.”
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.