September 4, 2006
Power center | Developer Hayes Gahagan wants to jolt Aroostook County by building a gas and biofuel powered cogeneration plant at the Loring Commerce Centre
By Taylor Smith
There's no simple way to describe projects in the energy industry. Navigating a tangle of state and federal regulations is difficult enough. Add to that the jargon of peak loads and grid balancing and it's enough to make even the most careful reader's head spin.
The story's no different at the former Air Force base in Limestone. Loring BioEnergy's plan to build a high-tech power plant at the Loring Commerce Centre, the sprawling industrial park created when the Air Force moved out in 1994, is a plan years in the making. Local businessman and former state legislator Hayes Gahagan in 2001 first proposed taking advantage of the Loring site to build a facility to process ethanol, an alternative fuel derived from plants like canola or soybeans. The project was fairly simple: Gahagan anticipated a change in federal energy regulations that would force some states like Maine to replace MBTE, a gasoline additive, with ethanol. But when that change didn't happen, the ethanol plan was scrapped. "Because the federal government waffled, we had to change the scope of the project," Gahagan says.
And here's where the Loring BioEnergy plan, like most energy development plans, gets complicated. The new proposal calls for a 55-megawatt cogeneration plant that would use natural gas ˆ piped 200 miles through an old jet-fuel line ˆ to produce electricity for the wholesale market. The cogeneration plant would reuse the heat thrown off during the energy production process, packaging it as thermal energy and piping it off to other nearby facilities in the form of heat or steam for use in industrial processes. What's more, the 200-mile fuel line would be the first natural gas link to reach Aroostook County, and Loring BioEnergy expects to sell a significant chunk of that gas to industrial users along the pipeline.
It's a plan with lots of moving parts, from the roughly $60 million in public financing required to get the plant constructed to the maze of regulations surrounding power plants in Maine. Yet in guiding Loring BioEnergy through the financing and regulatory processes, Gahagan and his partners have stressed the importance of the cogeneration plant as an economic development tool. The strategy may not sway those charged with taking an unbiased look at Loring BioEnergy's plans ˆ like, say, members of the state's Public Utilities Commission, which already has denied portions of the company's plans. But others involved in economic development in Aroostook County are likely to be favorably moved by Loring BioEnergy's story.
Gahagan, a sixth-generation Aroostook County native, sees Loring BioEnergy as a partial salve for a region's economic sluggishness. An information packet on Loring BioEnergy tags the economic impact of the project ˆ including construction ˆ at more than 1,200 jobs and $36 million in payroll supported directly and indirectly by Loring BioEnergy. It touts the so-called thermal energy portion of the project as a tremendous draw for companies eyeing a move to Loring Commerce Centre. "You might call this project an industrial park project," says Gahagan. "We're building the infrastructure to build a place where industry can take advantage of it. It becomes an anchor."
But the project has been challenging from the start. Now, some five years after Gahagan first considered building a power plant at Loring, plenty of questions remain. As the scope of the project changed from ethanol to power generation ˆ not to mention thermal energy and natural gas ˆ the project's size has increased. Gahagan has recruited a number of partners with technical expertise, from consultants at national engineering firms to energy specialists with backgrounds in power plant construction and operation.
Meanwhile, Gahagan also has lined up modest financial backing, though roughly $60 million of the project's $75 million price tag still needs to be funded. Gahagan expects to cover that amount through industrial revenue bonds issued by the Loring Development Authority. In the coming years, there's likely to be plenty more red tape Loring BioEnergy has to clear before the facility is fired up for the first time, which Gahagan expects to happen in 2008.
Still, Loring BioEnergy already has backers in northern Maine, including people like Carl Flora, president and CEO of the Loring Development Authority, the agency that oversees the Loring Commerce Centre. But Gahagan knows he needs to convince investors and regulators the plan is one that can work. "That's why we've already spent $4 million," he says. "There's a lot to do to explain that this isn't an extraordinary project."
Electricity, steam and biofuel
For a $75 million project whose success hinges on public acceptance, Loring BioEnergy over the years has maintained a relatively low profile. Gahagan and his partners ˆ including Stone & Webster, an energy consulting subsidiary of Baton Rouge, La.-based engineering company Shaw Group ˆ have largely avoided discussing the project with outside sources. (Multiple calls to Kevin McNulty, the Stone & Webster consultant working with Gahagan and Loring BioEnergy, were not returned.)
The reason for that relative silence, says Gahagan, has largely been to avoid stirring up controversy that might complicate the development and financing processes. He's reluctant to speculate from which direction controversy might come, but notes that it could be as simple as raising the ire of competitors within the energy industry. "We were trying to be very quiet," he says. "Scud missiles come from everywhere. We had three public hearings for anyone to come in and scuttle the project."
These days, however, Gahagan is at least a bit more open to discussing the project. Still, Gahagan concedes there's plenty he can't discuss, including who, exactly, will buy the electricity Loring BioEnergy plans to generate. So his message these days focuses on what he sees as the potential economic impact the project would bring to Aroostook County.
For starters, Gahagan, who describes himself as a "typical entrepreneur-developer type," says the project is a good match for Aroostook County's workforce. And if the average county resident isn't fully schooled in the ins and outs of a 55-megawatt cogeneration power plant, Gahagan points to a training program Loring BioEnergy is setting up with Northern Maine Community College in Presque Isle to train people to perform the kind of work required in a power plant, work Gahagan describes as "processing" work. "This is basically a processing plant. We take raw materials to form a fuel to make electricity," he says. "We wouldn't be good at computer chip manufacturing. But when it comes to
processing, our skill sets in Aroostook County especially lend us to that kind of work."
Carl Flora, president and CEO of Loring Development Authority, agrees that the Loring BioEnergy project would be a boon to the former Air Force base. The big draw, says Flora, is the thermal heat produced a cogeneration plant that can be tapped by industrial users.
According to Gahagan, the cogeneration plant would provide roughly 200,000 pounds-per-hour of process steam capacity ˆ enough to run a high-volume potato processing plant, for example. "It makes our site that much more attractive to other industries," Flora says. "It would be an infrastructure enhancement, and another reason to persuade a business to locate here."
Jill Feblowitz, director of energy wholesale strategies at Energy Insights, a research and consulting firm in Framingham, Mass., says the concept of using thermal heat isn't new, but can help balance the bottom line ˆ especially considering Loring BioEnergy's 55-megawatt facility is considerably smaller than the typical power plant that churns out 300 megawatts or more every year.
Gahagan also hopes to drive revenue by selling off excess natural gas capacity in the 200-mile Searsport-to-Loring pipeline that was used to ship jet fuel to the Air Force base in Limestone. The six-inch-diameter pipe, according to Gahagan, has a capacity of 20 million cu. ft. a day. Since the cogeneration plant requires only about 14 million cu. ft. of natural gas a day, Gahagan says Loring BioEnergy will try to offload that excess capacity to businesses along the pipeline.
Gahagan expects the pipeline to be fully converted by late next year, after a $10 million rehab job is completed that includes installing compressor stations in Winterport and Mattawamkeag. He says a handful of companies already have expressed interest in tapping into that supply of natural gas. "That pipeline has been lying dormant for years," he says.
"We have to take small steps, and we've demonstrated we're patient, but we can do a lot for [those companies] along the corridor."
Loring BioEnergy hasn't forgotten about ethanol, either. In fact, the thermal energy produced by the cogeneration plant could be used to process canola ˆ which is slowly gaining as a rotation crop grown by potato farmers in Aroostook County ˆ into ethanol. (For more on Gahagan's ethanol plans, see "Homegrown," this page.)
Gridlocked
But besides selling thermal energy to local firms and offloading natural gas to industrial users along the pipeline, how does Loring BioEnergy plan on making money from power generation? Like many things in the energy world, it's complicated.
Loring BioEnergy planned to market itself as an in-region producer of electricity, a designation that requires approval from the Maine Public Utilities Commission. With that designation, Loring BioEnergy would have been able to ship electricity directly to energy companies like Maine Public Service Company, a subsidiary of Presque Isle's Maine & Maritimes Corp. that provides electricity to roughly 37,000 residential and commercial customers in northern Maine.
But to get that approval, Loring BioEnergy asked the PUC in late 2004 to help broker a deal between the company and MPS in which MPS would agree to purchase power and contribute funding for the construction of the cogeneration plant. Loring BioEnergy's argument for the deal hinged on its potential to increase the reliability of electricity in northern Maine.
Aroostook County is at the end of the road when it comes to electricity. It's not connected to the same power grid as the rest of Maine, and though there are energy production facilities in northern Maine, much of Aroostook County's energy is piped in from across the border in New Brunswick. Instead, Gahagan and his partners believe that Aroostook County should be generating the bulk of its power within its borders. "There's a need for additional local generation on the northern Maine grid, which is isolated from the rest of the New England grid and the New England Power Pool," says Andrew Schroeder, a partner at New York-based EIF Group, which has invested an undisclosed amount with Loring BioEnergy. (EIF Group announced late last year that it would provide up to $15 million in equity investment to help finance the construction and operation of the cogeneration facility. Schroeder says EIF has invested a "much smaller amount to date.")
But the PUC last year rebuked Loring BioEnergy's argument. "Ultimately, the commission found that there wasn't an urgent reliability issue in northern Maine, and that there were a number of alternatives out there to deal with reliability in the future," says Mitch Tannenbaum, deputy general counsel at the PUC.
As a result, Loring BioEnergy had to switch horses midstream. Instead of selling power directly to Maine Public Service Co., Gahagan and his partners opted instead to sell power wholesale to a host of customers, including potentially energy brokers, municipalities or other electricity supply companies. "There's plenty of ways to get it done in spite of government regulations," Gahagan says. "In America under capitalism, where there's a will there's a way."
But the change also complicated Loring BioEnergy's financing arrangement. The $60 million industrial revenue bond the LDA agreed to issue was predicated on Loring BioEnergy striking a long-term deal with a company that had the financial heft to satisfy the bond's underwriter, Wall Street firm UBS. After that deal was blocked by the PUC, Gahagan says Loring BioEnergy had to drum up new deals that would still meet the underwriter's terms.
Gahagan says the company is finalizing a handful of contracts with groups that will purchase wholesale energy from the Loring site and ship it off for retail use. Though he won't say who he's negotiating with, Energy Insight's Feblowitz speculates that municipalities that operate their own local utilities, such as Houlton or Van Buren, might be interested in an alternative to their current electricity arrangement. "There are about 3,500 electric power companies in the country and only about 250 are big utilities," she says. "So there may be a county or a small city out there that wants to get independent from the utility company."
It's difficult to know exactly how competitive Loring BioEnergy's prices will be because any energy company's success is predicated on how cheaply it can deliver electricity ˆ something that won't be clear in Loring BioEnergy's case until the project is closer to completion. That said, Feblowitz says most of the new electricity generation in the United States is from gas-powered plants, which should put Loring BioEnergy in the same ballpark.
EFI Group's Schroeder says he expects Loring BioEnergy to break ground on the cogeneration facility later this year. But between now and the groundbreaking, it's quite possible, based on what's happened already during the years Gahagan has worked to get the project off the ground, more changes could be on the way. Perhaps Gahagan will announce a blockbuster deal. Or perhaps Loring BioEnergy will run into more tangles of bureaucratic red tape, financing difficulties or one of many other issues that could send the plan into a tailspin.
For all the complexities, though, Gahagan remains focused on what he says is the project's simple goal: An economic boost for one of Maine's struggling counties. "Aroostook County needs a break," says Gahagan. "We need good news in Aroostook County, and I think this is good news."
The story's no different at the former Air Force base in Limestone. Loring BioEnergy's plan to build a high-tech power plant at the Loring Commerce Centre, the sprawling industrial park created when the Air Force moved out in 1994, is a plan years in the making. Local businessman and former state legislator Hayes Gahagan in 2001 first proposed taking advantage of the Loring site to build a facility to process ethanol, an alternative fuel derived from plants like canola or soybeans. The project was fairly simple: Gahagan anticipated a change in federal energy regulations that would force some states like Maine to replace MBTE, a gasoline additive, with ethanol. But when that change didn't happen, the ethanol plan was scrapped. "Because the federal government waffled, we had to change the scope of the project," Gahagan says.
And here's where the Loring BioEnergy plan, like most energy development plans, gets complicated. The new proposal calls for a 55-megawatt cogeneration plant that would use natural gas ˆ piped 200 miles through an old jet-fuel line ˆ to produce electricity for the wholesale market. The cogeneration plant would reuse the heat thrown off during the energy production process, packaging it as thermal energy and piping it off to other nearby facilities in the form of heat or steam for use in industrial processes. What's more, the 200-mile fuel line would be the first natural gas link to reach Aroostook County, and Loring BioEnergy expects to sell a significant chunk of that gas to industrial users along the pipeline.
It's a plan with lots of moving parts, from the roughly $60 million in public financing required to get the plant constructed to the maze of regulations surrounding power plants in Maine. Yet in guiding Loring BioEnergy through the financing and regulatory processes, Gahagan and his partners have stressed the importance of the cogeneration plant as an economic development tool. The strategy may not sway those charged with taking an unbiased look at Loring BioEnergy's plans ˆ like, say, members of the state's Public Utilities Commission, which already has denied portions of the company's plans. But others involved in economic development in Aroostook County are likely to be favorably moved by Loring BioEnergy's story.
Gahagan, a sixth-generation Aroostook County native, sees Loring BioEnergy as a partial salve for a region's economic sluggishness. An information packet on Loring BioEnergy tags the economic impact of the project ˆ including construction ˆ at more than 1,200 jobs and $36 million in payroll supported directly and indirectly by Loring BioEnergy. It touts the so-called thermal energy portion of the project as a tremendous draw for companies eyeing a move to Loring Commerce Centre. "You might call this project an industrial park project," says Gahagan. "We're building the infrastructure to build a place where industry can take advantage of it. It becomes an anchor."
But the project has been challenging from the start. Now, some five years after Gahagan first considered building a power plant at Loring, plenty of questions remain. As the scope of the project changed from ethanol to power generation ˆ not to mention thermal energy and natural gas ˆ the project's size has increased. Gahagan has recruited a number of partners with technical expertise, from consultants at national engineering firms to energy specialists with backgrounds in power plant construction and operation.
Meanwhile, Gahagan also has lined up modest financial backing, though roughly $60 million of the project's $75 million price tag still needs to be funded. Gahagan expects to cover that amount through industrial revenue bonds issued by the Loring Development Authority. In the coming years, there's likely to be plenty more red tape Loring BioEnergy has to clear before the facility is fired up for the first time, which Gahagan expects to happen in 2008.
Still, Loring BioEnergy already has backers in northern Maine, including people like Carl Flora, president and CEO of the Loring Development Authority, the agency that oversees the Loring Commerce Centre. But Gahagan knows he needs to convince investors and regulators the plan is one that can work. "That's why we've already spent $4 million," he says. "There's a lot to do to explain that this isn't an extraordinary project."
Electricity, steam and biofuel
For a $75 million project whose success hinges on public acceptance, Loring BioEnergy over the years has maintained a relatively low profile. Gahagan and his partners ˆ including Stone & Webster, an energy consulting subsidiary of Baton Rouge, La.-based engineering company Shaw Group ˆ have largely avoided discussing the project with outside sources. (Multiple calls to Kevin McNulty, the Stone & Webster consultant working with Gahagan and Loring BioEnergy, were not returned.)
The reason for that relative silence, says Gahagan, has largely been to avoid stirring up controversy that might complicate the development and financing processes. He's reluctant to speculate from which direction controversy might come, but notes that it could be as simple as raising the ire of competitors within the energy industry. "We were trying to be very quiet," he says. "Scud missiles come from everywhere. We had three public hearings for anyone to come in and scuttle the project."
These days, however, Gahagan is at least a bit more open to discussing the project. Still, Gahagan concedes there's plenty he can't discuss, including who, exactly, will buy the electricity Loring BioEnergy plans to generate. So his message these days focuses on what he sees as the potential economic impact the project would bring to Aroostook County.
For starters, Gahagan, who describes himself as a "typical entrepreneur-developer type," says the project is a good match for Aroostook County's workforce. And if the average county resident isn't fully schooled in the ins and outs of a 55-megawatt cogeneration power plant, Gahagan points to a training program Loring BioEnergy is setting up with Northern Maine Community College in Presque Isle to train people to perform the kind of work required in a power plant, work Gahagan describes as "processing" work. "This is basically a processing plant. We take raw materials to form a fuel to make electricity," he says. "We wouldn't be good at computer chip manufacturing. But when it comes to
processing, our skill sets in Aroostook County especially lend us to that kind of work."
Carl Flora, president and CEO of Loring Development Authority, agrees that the Loring BioEnergy project would be a boon to the former Air Force base. The big draw, says Flora, is the thermal heat produced a cogeneration plant that can be tapped by industrial users.
According to Gahagan, the cogeneration plant would provide roughly 200,000 pounds-per-hour of process steam capacity ˆ enough to run a high-volume potato processing plant, for example. "It makes our site that much more attractive to other industries," Flora says. "It would be an infrastructure enhancement, and another reason to persuade a business to locate here."
Jill Feblowitz, director of energy wholesale strategies at Energy Insights, a research and consulting firm in Framingham, Mass., says the concept of using thermal heat isn't new, but can help balance the bottom line ˆ especially considering Loring BioEnergy's 55-megawatt facility is considerably smaller than the typical power plant that churns out 300 megawatts or more every year.
Gahagan also hopes to drive revenue by selling off excess natural gas capacity in the 200-mile Searsport-to-Loring pipeline that was used to ship jet fuel to the Air Force base in Limestone. The six-inch-diameter pipe, according to Gahagan, has a capacity of 20 million cu. ft. a day. Since the cogeneration plant requires only about 14 million cu. ft. of natural gas a day, Gahagan says Loring BioEnergy will try to offload that excess capacity to businesses along the pipeline.
Gahagan expects the pipeline to be fully converted by late next year, after a $10 million rehab job is completed that includes installing compressor stations in Winterport and Mattawamkeag. He says a handful of companies already have expressed interest in tapping into that supply of natural gas. "That pipeline has been lying dormant for years," he says.
"We have to take small steps, and we've demonstrated we're patient, but we can do a lot for [those companies] along the corridor."
Loring BioEnergy hasn't forgotten about ethanol, either. In fact, the thermal energy produced by the cogeneration plant could be used to process canola ˆ which is slowly gaining as a rotation crop grown by potato farmers in Aroostook County ˆ into ethanol. (For more on Gahagan's ethanol plans, see "Homegrown," this page.)
Gridlocked
But besides selling thermal energy to local firms and offloading natural gas to industrial users along the pipeline, how does Loring BioEnergy plan on making money from power generation? Like many things in the energy world, it's complicated.
Loring BioEnergy planned to market itself as an in-region producer of electricity, a designation that requires approval from the Maine Public Utilities Commission. With that designation, Loring BioEnergy would have been able to ship electricity directly to energy companies like Maine Public Service Company, a subsidiary of Presque Isle's Maine & Maritimes Corp. that provides electricity to roughly 37,000 residential and commercial customers in northern Maine.
But to get that approval, Loring BioEnergy asked the PUC in late 2004 to help broker a deal between the company and MPS in which MPS would agree to purchase power and contribute funding for the construction of the cogeneration plant. Loring BioEnergy's argument for the deal hinged on its potential to increase the reliability of electricity in northern Maine.
Aroostook County is at the end of the road when it comes to electricity. It's not connected to the same power grid as the rest of Maine, and though there are energy production facilities in northern Maine, much of Aroostook County's energy is piped in from across the border in New Brunswick. Instead, Gahagan and his partners believe that Aroostook County should be generating the bulk of its power within its borders. "There's a need for additional local generation on the northern Maine grid, which is isolated from the rest of the New England grid and the New England Power Pool," says Andrew Schroeder, a partner at New York-based EIF Group, which has invested an undisclosed amount with Loring BioEnergy. (EIF Group announced late last year that it would provide up to $15 million in equity investment to help finance the construction and operation of the cogeneration facility. Schroeder says EIF has invested a "much smaller amount to date.")
But the PUC last year rebuked Loring BioEnergy's argument. "Ultimately, the commission found that there wasn't an urgent reliability issue in northern Maine, and that there were a number of alternatives out there to deal with reliability in the future," says Mitch Tannenbaum, deputy general counsel at the PUC.
As a result, Loring BioEnergy had to switch horses midstream. Instead of selling power directly to Maine Public Service Co., Gahagan and his partners opted instead to sell power wholesale to a host of customers, including potentially energy brokers, municipalities or other electricity supply companies. "There's plenty of ways to get it done in spite of government regulations," Gahagan says. "In America under capitalism, where there's a will there's a way."
But the change also complicated Loring BioEnergy's financing arrangement. The $60 million industrial revenue bond the LDA agreed to issue was predicated on Loring BioEnergy striking a long-term deal with a company that had the financial heft to satisfy the bond's underwriter, Wall Street firm UBS. After that deal was blocked by the PUC, Gahagan says Loring BioEnergy had to drum up new deals that would still meet the underwriter's terms.
Gahagan says the company is finalizing a handful of contracts with groups that will purchase wholesale energy from the Loring site and ship it off for retail use. Though he won't say who he's negotiating with, Energy Insight's Feblowitz speculates that municipalities that operate their own local utilities, such as Houlton or Van Buren, might be interested in an alternative to their current electricity arrangement. "There are about 3,500 electric power companies in the country and only about 250 are big utilities," she says. "So there may be a county or a small city out there that wants to get independent from the utility company."
It's difficult to know exactly how competitive Loring BioEnergy's prices will be because any energy company's success is predicated on how cheaply it can deliver electricity ˆ something that won't be clear in Loring BioEnergy's case until the project is closer to completion. That said, Feblowitz says most of the new electricity generation in the United States is from gas-powered plants, which should put Loring BioEnergy in the same ballpark.
EFI Group's Schroeder says he expects Loring BioEnergy to break ground on the cogeneration facility later this year. But between now and the groundbreaking, it's quite possible, based on what's happened already during the years Gahagan has worked to get the project off the ground, more changes could be on the way. Perhaps Gahagan will announce a blockbuster deal. Or perhaps Loring BioEnergy will run into more tangles of bureaucratic red tape, financing difficulties or one of many other issues that could send the plan into a tailspin.
For all the complexities, though, Gahagan remains focused on what he says is the project's simple goal: An economic boost for one of Maine's struggling counties. "Aroostook County needs a break," says Gahagan. "We need good news in Aroostook County, and I think this is good news."
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