Maxim slashes coal costs, staffing at HR Milner power plant in Alberta

Maxim Power Corp. (TSX: MXG) on June 10 announced cost reductions at its coal-fired HR Milner Generating Station (M1) in Alberta.

These reductions enable M1 to be profitable during lower priced hours, improve M1’s competitiveness across all dispatch hours, and provide for greater returns for the company over the long term. The key components of these reductions are:

  • Fuel Supply – Maxim has reduced the cost of M1’s baseload fuel (coal) by 80% versus the cost under its previous contractual obligations, which represents annual savings of C$11.4 million to C$13.4 million. This reduction was achieved through the termination of the longstanding coal supply agreement with Coal Valley Resources Inc., set to expire in December 2015, and entering into a new agreement with Grande Cache Coal Corp. (GCC) to provide lower-grade thermal coal. Based on the new GCC agreement and existing inventories, M1 will have sufficient fuel supply to meet operational requirements until late 2016. Coal Valley Resources, which has an Alberta surface mine, is one of the Canadian coal mining operations that U.S.-based Westmoreland Coal acquired last year from Sherritt International. Grande Cache Coal is largely a metallurgical coal producer in Alberta.
  • Staff Reductions- During the second quarter of 2015, staffing levels at M1 were reduced by 33% as compared to the beginning of 2015. The annualized cost savings anticipated from this reduction are C$3.1 million. Key operations and maintenance activities have been maintained to ensure the reliability of M1 remains best of class.

M1 is a 150-MW coal-fired power station located near the town of Grande Cache, Alberta, which has been in continuous operation since 1972. The single unit uses a balanced draft Babcock & Wilcox downshot fired boiler, which was designed to burn by-product coal materials.

Based in Calgary, Alberta, Maxim is an independent power producer, which acquires or develops, owns and operates innovative and environmentally responsible power and power related projects. It currently owns and operates 39 power plants in Alberta, the United States and France, having 778 MW of electric generating capacity.

Maxim Power said in a May 5 financial report that as of March 31, it had breached various financial covenants in relation to its Canadian bank facilities. Management obtained a waiver for these March 31 covenant breaches from the bank on May 5. Current Alberta power forward price curves suggest low power prices in the near term and under these low prices, Maxim said it would likely continue to breach certain financial covenants during the remainder of 2015.

Maxim’s outlook is significantly impacted by Alberta electricity and fuel prices. Alberta electricity prices are a key revenue determinant for the M1 facility. Alberta power prices fluctuate based on the supply of and demand for electricity within Alberta, the cost of key inputs such as natural gas, and other market factors. Commencing in 2014, Alberta power prices became more closely correlated to gas prices as new supply came on the system. This trend is expected to continue for the foreseeable future, Maxim said in the May 5 financial report.

In June 2014, the Alberta Utilities Commission (AUC) approved Maxim’s application to convert the fuel source for the Milner Unit 2 (M2) project 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 M1 coal facility.

Also, Maxim is proposing to enhance the M1 site energy output by building Milner Unit 3 (M3) which will be made up of two new gas-fired turbines located next to M1. M3 will increase generating capacity at the M1 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 M1 steam turbine, displacing coal-sourced steam. M3, before giving effect to the development of M2, will increase the nameplate capacity at the Milner site from 150 MW to 236 MW. On Feb. 12, MAXIM received approval from the AUC to construct and operate M3.

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.