Geothermal operator may miss scheduled repayment

Nevada Geothermal Power Inc. said last week it may not be able to meet a year-end debt payment on its Blue Mountain geothermal plant near Winnemucca.

The company said power production from the plant fell short during the third quarter and studies indicate that the temperature of hot water from wells at Blue Mountain will continue to decline without the development of new wells.

Making matters worse, a pump at the plant broke down, a small fire broke out and one of the plant's three power units was shut down during September and October, Nevada Geothermal Power said in a filing with the Securities and Exchange Commission last week.

The plant produced an average of 30 megawatts of power during the third quarter, down from 34 megawatts during the second quarter. It was projected to produce 49 megawatts when the project was under development.

As a result, publicly held Nevada Geothermal said it's likely to miss its scheduled December payment to EIG Global Energy Partners. Nevada Geothermal owes EIG about $91.3 million on the mezzanine financing, which carries a 14 percent interest rate.

John Hancock Life Insurance provided the senior financing on the deal. It's owed $91.7 million on the senior debt that carries a 4.14 percent interest rate, and Nevada Geothermal said it expects to remain current on the John Hancock loan.

The geothermal company headquartered at Vancouver said it's working on two fronts to resolve its problems.

On the financial front, it's negotiating with EIG Global Energy Partners to restructure the loan, and it's hired Marathon Capital to seek tax-assisted funding.

"The outcome of these activities is unknown and subject to considerable uncertainty," Nevada Geothermal cautioned in its SEC filing. But it said it doesn't expect EIG to declare the loan to be in default as the result of the missed December payment.

"We are working with our lenders in order to achieve a sustainable funding structure for the Blue Mountain project," said Brian Fairbank, president and chief executive officer of the company.

Fairbank noted that the geothermal plant continues to generate significant operating cash flows. The company posted an operating profit of $1.2 million in the third quarter from $5.2 million in electric sales.

The Blue Mountain Geothermal Project continues to generate significant positive cash from operations.

On the engineering front, Nevada Geothermal is trying to resolve the problems that have led to the decline in production.

The root cause: Injection wells at Blue Mountain are located too close to the production wells that draw water heated by the earth to drive electric generators. Because the wells are too close, the recycled brine doesn't have enough time to be sufficiently reheated, the company said.

It unsuccessfully tried drilling two wells farther out, and now has hired consultants to undertake new tests to figure out how the company can stimulate geothermal resources at the site.

The plant was built with the help of a federal grant of approximately $65.7 million through the 2009 American Recovery and Reinvestment Act, and the loan from John Hancock is 80 percent guaranteed by the federal government.

The plant in Humboldt County began generating electricity in 2009. It hold a contract to sell its electric production to NV Energy.