How Aspen Skiing Co. became a power company

Bob Ward
Aspen Journalism
Julian Huzyk describes the workings of the generator, essentially an oversized diesel truck engine with 16 cylinders and 1500 horsepower, where methane is converted into electricity.
Bob Ward/Aspen Journalism |

Q&A with William Koch

Billionaire William Koch is familiar to many Aspenites as the owner of the Elk Mountain Lodge near Ashcroft. He also opposed the city of Aspen’s proposed hydroelectric project on Castle and Maroon creeks. When coupled with his well-publicized opposition to the Cape Wind renewable energy project near Cape Cod, this might lead some to think Koch is opposed to renewable energy projects, but his views are more nuanced than that.

As the owner of Oxbow Carbon, the parent company of the Elk Creek Mine in Somerset, Koch green-lighted a 3-megawatt plant that generates electricity from coal-mine methane. Recently he answered a few email questions from Aspen Journalism.

Question: Why enter the relatively uncharted waters of coal mine methane generation?

Answer: We have always been a company that has been willing to take risks. When we built geo-thermal power plants, we built them in places where larger companies declined to invest. The Elk Creek Coal Mine, which has historically been one of the most productive underground mines in the country, developed out of a bankruptcy sale from the old U.S. Steel Company. We try to see opportunity everywhere. Our company previously owned and operated two gas-fired generating stations. We recognized the mine methane as an energy source that could be used to generate power for our operations rather than being wasted. We also recognized that this project could be sited and operated in a way that did not interfere with our coal-mining operations. So we viewed this project as complementing our coal-mining operations and a project that we were well-suited to develop based on our experience in power generation.

Question: Were the perceived greenhouse gas benefits of methane capture/generation part of the decision?

Answer: No. We viewed this as a challenge. Our company has a history of taking waste product and turning it into energy. We also have been exploring for natural gas in the area for more than a decade. We had the expertise already in place to see an opportunity with methane gas. We were aware of the potential benefits of capturing and using the waste methane. The potential greenhouse gas benefits were not a driver in our decision to proceed with the project. But we did consider them.

Question: Did you ever meet directly with the Aspen Skiing Co. principals, or the Crown family, to craft the agreement?

Answer: No. I pride myself in hiring smart, capable people. I am confident that the Crown family does the same or else they would not be so successful. Our companies worked very well together.

Editor’s note: This is the first in a series of stories by Aspen Journalism about the energy efficiency and sustainability efforts of various ski areas. This initial article looks at a unique clean-energy project involving the Aspen Skiing Co.

The Aspen Skiing Co. has used its marketing muscle to publicize a methane-fired power plant that it built in 2012, but the idea for the clean-energy project didn’t come from the Skico boardroom.

In fact, it started in 2010 with three guys in a free-wheeling conversation in the offices of Holy Cross Energy in Glenwood Springs. Eventually they would join hands with Skico, which provided $5.5 million to build the plant, but the story began well before Skico’s involvement.

One of the three men at the meeting was an environmentalist from Carbondale, another was a Denver oil-and-gas guy and the third was the CEO of Holy Cross, a rural, electric cooperative. All three were motivated, in their own ways and for their own reasons, to produce clean electricity. The environmentalist wanted to reduce the threat of global warming, the oil-and-gas guy saw a business opportunity in generating power from waste gas at coal mines, and the utility guy had a mandate from both the state of Colorado and his ratepayers to go green.

The environmentalist was Randy Udall, a Carbondale energy analyst who founded the Community Office for Resource Efficiency in Aspen, where he focused relentlessly on reducing energy consumption and finding clean, renewable ways to make electricity. At the time of the meeting, he’d been unsuccessfully looking for years to generate power using the methane that leaks naturally from coal mines.

Holy Cross CEO, Del Worley, was also intrigued by the idea of a methane-to-electricity project. The state has required Holy Cross to derive 20 percent of its power from renewable sources by 2020, but the forward-thinking utility already has a self-imposed goal of 20 percent by 2015. Wind, solar, methane and soon biomass — burning beetle-killed trees and other organic matter — will all be part of the Holy Cross portfolio. Even back in 2010, Worley saw methane as a piece of the puzzle, but it was unknown territory.

“Randy (Udall) was frustrated by all this methane going into the air and wondered if, as in Europe, it couldn’t be burned or captured,” Worley recalled. “We spent quite a bit of internal time talking about it, bringing in engineers and engine manufacturers, but the mines were not as motivated as Randy in those days.”

The third guy in the room was Tom Vessels, a 40-year veteran of the oil and gas industry and a former president of both the Independent Petroleum Association of Mountain States and the Colorado Petroleum Association. Vessels formed Vessels Coal Gas in 2003 to do exactly what Udall dreamed of — but he also had knocked on many doors and been turned away.

“America is awash in energy resources, so there’s not that much incentive to go after a somewhat problematic energy source,” Vessels said.

Methane is often released when coal is extracted from the earth, and mines must vent the flammable gas to protect their workers. Methane leakage is serious business in the U.S. coal industry, but for the most part the gas is seen as a safety matter and not a beneficial commodity.

But there’s more to methane than that. According to the U.S. Environmental Protection Agency, methane is 20 times as potent a greenhouse gas as carbon dioxide. So for every unit of methane you can remove from the atmosphere, you would have to remove 20 times as much carbon for an equivalent benefit. Udall called methane “CO2 on steroids.”

This would make coal-mine methane especially valuable under a potential cap-and-trade emissions system. Methane is slated for inclusion as an offset under California’s recently enacted cap-and-trade program, which would create new value for methane-fired power producers.

Vessels’ basic proposition is that mines vent methane anyway, so why not capture it above ground and make electricity — especially given the huge greenhouse benefits? Mine operators understand the idea, but they’re already heavily regulated and leery of potential headaches, including government intervention arising from a new use of methane.

In the end, however, Vessels, Worley and Udall leaped numerous hurdles and succeeded in creating a 3-megawatt methane-to-electricity plant in Somerset. They gained permission from the Elk Creek Mine, owned by Oxbow Carbon LLC of West Palm Beach, Fla., to capture vented methane at the sprawling mine complex just off Highway 133 below Paonia Reservoir, and Skico invested $5.5 million to build the generating plant. Holy Cross bought the power, using a series of “wheeling agreements” to carry the electricity across other companies’ lines to Holy Cross customers in Eagle, Garfield and Pitkin counties.

Skico CFO Matt Jones labored for a year to create the intricate, multi-pronged business agreement for the plant. “It’s just a brand-new kind of business,” he said. “But that’s what we tried to do was create a template for it.”

The strange, improbable deal united vastly different partners — one that mines black coal and another that sells holidays on white snow. The partners come from opposite ends of America’s political divide, but they agree it’s good to put an otherwise wasted resource to use. And except for the utility, which is buying the power, they stand to make some money.

Profits from the plant accrue first and foremost to Skico, which puts in the most money. Jones says the plant produces a modest 12 percent return on investment. When Skico’s investment is recovered, the other partners will receive larger shares of the proceeds.

The creation of the clean-energy plant has resulted in media attention and recognition for the partners. Skico won a Golden Eagle award from the National Ski Areas Association, the highest environmental honor in the industry. Vessels Coal Gas received the 2013 Conservation Achievement Award from the Paonia-based Conservation Center.

But profitability is the project’s most salient aspect — the primary reason it got built, and the reason that others might imitate it.

“If you appeal to charity (to solve climate change), you’re only going to get so far so fast,” Jones said. “To blow through that and create the kind of exponential growth you need, you’ve got to harness the force of capitalism.”

Ski resort or electric company?

Skico is a resort business, but in the last decade it has evolved into a power producer, too. Clean energy is a “very small fraction” of its overall revenue, Jones said, and completely separate from its core business. Nonetheless, Skico now operates a micro-hydroelectric plant at Snowmass ski area (2004), a 147-kilowatt solar array in Carbondale (2008) and now a 3-megawatt methane plant. Together they produce enough clean power to supply some 2,420 average American homes.

That’s roughly equivalent to the amount of energy Skico consumes annually to operate its chairlifts, snow cats, snow guns, hotels, restaurants and office buildings.

In its annual sustainability reports, Skico compiles its electricity and fuel consumption to calculate its own carbon footprint — roughly 31,000 tons per year. (The figure does not include airplane and car trips taken by Skico customers.) EPA says that number is comparable to the emissions of 1,405 average homes or 5,859 passenger vehicles.

By destroying methane over in Somerset, however, the plant removes three times as much greenhouse gas from the atmosphere as Skico puts in. That greenhouse reduction is equivalent to the carbon produced by 4,214 homes or 17,577 cars.

Skico doesn’t use the power from any of its generation plants; it sells the electricity to Holy Cross, thus making a little money and maximizing the public-relations value.

“If you’re a business like us, and you’re aware of climate change, and you’re also aware of the gnarliness of the ski industry — if it doesn’t snow, you’re screwed — then you’re constantly thinking about diversification,” said Auden Schendler, Skico’s vice president for sustainability.

He admits, however, “unless you have this broader (environmental) mission, it doesn’t make sense to do this.”

Worlds away from ski country

Situated in a steep-walled canyon of tan shale, the Elk Creek Mine is one of several industrial complexes that give the North Fork of the Gunnison River an Appalachian coal-country feel. To reach the methane plant, one must leave Highway 133 in Somerset and climb a steep dirt road into a tributary valley where, amid forests of scrub oak, the mine entrance bores into the mountainside. Roughly a quarter-mile above the entrance, a powerful ventilation system pulls air from the vast network of tunnels and methane is extracted, compressed and conditioned for conversion to electricity.

Skico recently celebrated its coal-industry collaboration in a promotional video showing freestyle skiers and snowboarders performing tricks on an old gas pipeline against a backdrop of black rockpiles and heavy machinery at the Elk Creek Mine. In the world of resort advertising, this clip was way outside the box.

“It was very clever, very well-done,” said Brent Giles, chief sustainability officer for Powdr Corp, which runs Utah’s Park City Mountain Resort and Copper Mountain in Colorado, among others. “It’s what you’ve got to do, but there aren’t a lot of people doing it.”

Clearly, Skico has picked up this coal-black football and run with it, using its promotional machinery to spur interest in methane-fired generation and attract green-minded guests.

But how did the deal come together, and why?

Back to 2010, when Udall, Vessels and Worley were discussing the potential for coal-mine methane. Udall didn’t work for Skico, but he was a friend of Schendler’s and had helped create both the Snowmass hydro project and the Carbondale solar array.

“We just had an ongoing conversation,” Schendler said. “Randy had the ideas and the projects, and we had the capital.”

Udall died last summer on a wilderness trip in Wyoming’s Wind River mountains, so it’s impossible to know his thoughts in 2010. But given his earlier work with Skico, the company was likely in the back of Udall’s mind as he spoke with Worley and Vessels about methane capture.

Vessels also had a third party in the back of his mind. After years of fruitless conversations with coal mines, he had made inroads with the Elk Creek Mine. Late in 2010, mine officials had told him, “If you can sell the (methane-fired) power, you’ve got a deal.”

Billionaire William Koch owns Oxbow Carbon, which owns the Elk Creek Mine. Aspenites know Koch as the owner of the Elk Mountain Lodge on Castle Creek, along with his recent opposition to the city of Aspen’s proposed (but never built) hydroelectric plant. Koch has invested in renewable energy projects in the past, but has vocally opposed the Cape Wind project on Nantucket Sound, where he owns a residence. When it came to burning waste methane for power, however, Koch told Aspen Journalism the new operation appropriately complemented the coal mine.

“We recognized the mine methane as an energy source that could be used to generate power for our operations rather than being wasted,” Koch said. “We also recognized that this project could be sited and operated in a way that did not interfere with our coal-mining operations.” (See sidebar on page A6 for more from William Koch.)

Holy Cross’s Worley said Tom Vessels, of Vessels Coal Gas, broke down barriers and ironed out contractual kinks. Having seen methane projects in England and Germany, Vessels understood both the business and engineering aspects of such a deal.

“He had taken care of all the issues that had stopped us,” Worley recalled. “Lo and behold, we had a contract.”

So after years of business development, Vessels and Udall had a willing coal mine and a utility to buy the power. Now they needed capital to build a plant and convert the gas to electricity. So they invited Skico to the party.

Schendler recalled that the Skico management team, including CEO Mike Kaplan, liked the idea but needed a green light from company ownership, meaning the Crown family of Chicago. Schendler remembers conversations with patriarch Lester Crown (over a beer) and Managing Partner Jim Crown (over a chicken lunch) in which both men, to Schendler’s surprise, expressed interest.

“They used to own coal mines, they know industry,” Schendler said. “Second, they’re business people and they’re always looking for ways to use capital, and this was during the recession when you couldn’t find a place for money.”

So, improbable as it may seem, the pieces were in place. A coal mine owned by a conservative billionaire would join hands with a luxury ski resort to produce and sell clean electricity.

“We have used methane in the past to heat the air in the mine during winter,” said Mike Ludlow, who runs the mine for Oxbow. “Now it’s being used for that in addition to generating electricity. It’s a resource that can be put to beneficial use.”

In early October the Elk Creek Mine laid off about half of its workforce, 150 workers, owing to a safety problem involving spontaneous combustion in a portion of the mine. The problem did not effect the methane plant, but did force Oxbow to abandon a longwall, a 68-ton piece of equipment worth tens of millions of dollars, and seal it underground.

Future of methane

The participants see the methane plant as a demonstration project. Like Skico, Vessels believes the project’s chief long-term benefit won’t be the clean power it generates — enough for a small town — but its novelty and visibility.

“The level of discussion (about coal mine methane) is rising, and I think some coal executives are more interested in talking to me,” Vessels said.

EPA’s Coalbed Methane Outreach Project estimates that methane from mines across the country could generate 274 to 827 megawatts of electricity. That’s an urban-scale amount of power, enough to supply 200,000 to 600,000 homes, depending on recovery efficiency.

Julian Huzyk, Vessels’ chief operating officer, has guided many visitors through the Somerset site, including state and federal legislators. He makes sure to show all visitors the thermal oxidizer, a giant steel silo where excess methane can be seen going up in flames.

Yes, the Elk Creek Mine emits far more methane than the existing plant can handle, which means there’s more methane for the taking.

“We’re generating three megawatts now, but we could easily generate 10 megawatts,” Huzyk smiled. “We’ve already had some tire-kicking going on around here for another six megawatts.”

That means opportunity for environmentalists, utilities and coal mines. Not to mention ski companies.


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