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Geothermal Project Sends Utility Cooperative into Chapter 11

Exploring and developing geothermal resources is expensive. But for one electric co-op in Alaska, it was too expensive.

On September 29th, the Naknek Electric Association filed for Chapter 11 bankruptcy reorganization, citing assets of $10 million to $50 million and liabilities in the same range. The filing in federal Bankruptcy Court stems from the electric cooperative's involvement in drilling a well aimed at finding an underground source of hot water to harness for making electricity. The small utility ran into unexpected costs and other problems with the drilling venture, a bankruptcy lawyer representing the co-op said. Naknek Electric generates power for communities and salmon canneries at Bristol Bay in Southwest Alaska.

"NEA has engaged in a geothermal drilling project requiring extraordinary capital," Ronald Seigley, a vice president for CoBank based near Denver, said in a statement filed in the Superior Court. "NEA has suffered material delays and cost overruns in that project. This has impaired NEA's ability to pay its debts as they become due."

The co-op's vision was to create a 25 MW geothermal generation plant and 450 miles of transmission lines to bring electric power to 25 villages across the region. The co-op was eager to find alternatives to diesel. As was explained in an earlier story on the project the residents of the co-op's territory currently pay $0.43 per kWh for electricity.

ThermaSource, a California-based geothermal driller and now one of the co-op's creditors, ran the rig and spud the G-1 well on Aug. 16, 2009.

Naknek Electric General Manager Donna Vukich said in July that the well was completed to a depth of 10,433 feet and found what could be a viable hydrothermal system for generating power. The geothermal project was over budget, in part because well costs went up with a state ruling that deep geothermal holes were subject to regulation as oil and gas wells.

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