Maxim Power Corp. (TSX: MXG) said in a March 17 financial report that it is making progress with a number of initiatives, including the construction of an 86-MW gas unit that will provide steam for its Milner coal plant in Alberta when the Milner plant can no longer fully operate on coal due to greenhouse gas restrictions.
As of the end of 2014, Canada-based MAXIM had 39 power plants with 776 MW of electric and 101 MW of thermal net generating capacity operating in Canada, the United States and France.
The projects the company is pursuing and other notable developments include:
MAXIM received regulatory approvals to construct and operate the Deerland peaking station, a 190-MW natural gas-fired peaking facility. MAXIM has entered into agreements to secure firm natural gas transportation service for the Deerland station. MAXIM expects that full-scale construction of the facility will commence pending commercial arrangements, which it is actively pursuing, and strengthening of prices in the Alberta power market.
SUMMIT is MAXIM’s development initiative located north of Grande Cache, Alberta, that owns metallurgical coal leases for the M14 and M16S mine projects. Current estimates for M14 are 18.9 million tonnes of low-mid volatile met coal reserves with a mine life of 17 years. M16S is located 30 kilometers northwest of M14 and a technical report estimating its reserve has not been prepared. M14 is permitted for a run-of-mine production rate of up to 1,300,000 tonnes per year. MAXIM has also received approval from the Alberta Energy Regulator to construct and operate a Coal Beneficiation Plant. This plant, to be located on MAXIM’s existing Milner industrial complex, will bifurcate M14’s run-of-mine coal into an estimated annual production of 950,000 tonnes of high-quality, low-mid-vol met coal for shipment to export markets, and 350,000 tonnes of fuel grade coal suitable for electricity production at MAXIM’s H.R. Milner generating station. These approvals provide SUMMIT with all of the requisite government and regulatory approvals to construct and operate M14.
In November 2014, MAXIM received delivery of five pieces of mine equipment including two continuous miners and three shuttle cars. The units are in storage awaiting development of SUMMIT. MAXIM said it expects that the long-run average price forecast for metallurgical coal will allow for the economically viable development of SUMMIT.
Milner Unit 2 (M2)
In June 2014, the Alberta Utilities Commission (AUC) approved MAXIM’s application to convert the fuel source for M2 from coal to natural gas and to increase the generating capacity of the proposed expansion from 500 MW to 520 MW. The M2 facility is to be located adjacent to the existing 150-MW Milner coal facility. The existing infrastructure at the Milner site allows MAXIM to leverage benefits including electrical connection, fuel delivery, water licenses, and a skilled operations team. MAXIM incurred costs in 2014 related to engineering and consulting work for permit amendments. In 2015, MAXIM may incur further costs on electrical interconnection consultation.
Milner Unit 3 (M3)
MAXIM is proposing to enhance the Milner site energy output by building M3, which is made up of two new gas-fired turbines located next to Milner. M3 will increase generating capacity at the Milner site while reducing total greenhouse gases and air emissions. Exhaust energy from M3’s gas turbines will be converted to steam and utilized to generate electricity in the existing Milner steam turbine, displacing coal-sourced steam. The generating capacity at the site will increase by 86 MW to 236 MW. Total emissions of carbon dioxide, nitrogen oxides, sulfur oxides and particulates at the Milner site will decrease compared to running the existing Milner coal facility. M3 is a separate and distinct project from M2. Earlier this year, MAXIM received approval from the AUC to construct and operate M3.
In 2012, the Government of Canada enacted regulations to reduce CO2emissions from coal-fired generation facilities. These new regulations limit carbon dioxide emissions for power plants commissioned after July 2015 to 420 tonnes of CO2 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 December 2019. Power plants built after 1974 are able to operate until the earlier of 50 years after the commissioning date and December 2029. The Milner facility was commissioned in 1972, and so it is allowed to operate to its full capacity to December 2019. After December 2019, Milner is allowed to operate at an annual capacity factor of up to 9% (using coal as a supply), which is approximately 113,500 MWh per annum, until December 2029, based on its current carbon dioxide emission levels. The steam from M3 will keep up power production from the existing M1 when the coal limits go into effect.
Milner is a 150 MW coal-fired station located near the town of Grande Cache, Alberta, which has been in continuous operation since 1972. Milner operates as a merchant power facility by selling electricity to the Alberta Electric System Operator (AESO) at spot market prices.
Forked River Expansion
MAXIM has submitted an application to PJM Interconnection to increase the output at the gas-fired Forked River site by up to 100 MW. Jersey Central Power and Light, the local utility, is currently undertaking the required studies to determine the feasibility of introducing incremental capacity at the site. MAXIM has engaged a consultant to provide environmental and permitting services for the project. An expansion in the facility will provide additional capacity to participate in future capacity auctions and realize cost savings per MWh because this expansion project will be on the existing Forked River site.
Forked River, an 87-MW facility located in Forked River, New Jersey, was acquired by MAXIM in 2008. Forked River operates under a long-term tolling agreement for which it receives monthly capacity payments until 2018. Should MAXIM not enter into a new tolling agreement for Forked River, it will receive monthly capacity payments and revenue for electricity generation in the PJM market.
The company noted that it owns Gold Creek, a 6-MW waste heat generation facility located in close proximity to Grande Prairie, Alberta, that utilizes waste heat from a TransCanada Pipelines mainline compressor to generate power. This facility is currently not running, pending an increase in power prices that support investment to connect the facility to a new compressor at the current site or another MAXIM site.
Asset sales are also being worked on
At the same time as it is working on growth initiatives, the company is also looking at selling assets.
“MAXIM is in compliance with all financial covenants at December 31, 2014,” the financial report said. “However, current Alberta power forward price curves suggest low Alberta power prices in the near term and under these low prices, the Corporation would likely breach the following financial covenants during the next twelve months: DSCR, interest coverage ratio and net funded debt to EBITDA ratio. If any covenant is not met, these facilities may become due on demand. As a result, significant doubt may exist with respect to the ability of the Corporation to continue as a going concern.
“MAXIM is currently in the process of pursuing various asset sales,” the report added. “The proceeds from these may in part be used to cash collateralize existing letters of credit under the Canadian credit facility and repay any draws on the revolver occurring in 2015, thereby mitigating the risk of covenant default and decreasing the Corporation’s debt service charges. In the event the sales do not proceed in a timely fashion, management is also actively pursuing various smaller asset sales with counterparties and financing options with current and prospective lenders which both would, in management’s view, enable the Corporation to achieve its business plans. No agreements have been reached as of the date of these financial statements and there can be no assurance that such agreements will be reached.”