Tom Vessels paired Bill Koch’s coal mine and Aspen Skiing in pursuit of profit
This article originally was published in the October 2012 issue of Colorado Biz Magazine.
by Allen Best
Give Tom Vessels his due. He’s a matchmaker and dealmaker who brought together what just may be the oddest couple of Colorado business. Who could imagine two enterprises in Colorado as unlikely to be paired as the Aspen Skiing Co. and Oxbow Mining?
They’re the yin and yang of business, Aspen Skiing being perhaps the state’s best-known brand in the international arena, its primary product snow, sparkling and virginal and white, always white. Oxbow, just 80 miles away, grubs coal from deep underground, its black product, high in energy and low in sulfur, railroaded to power plants in Kentucky and Mississippi, Alabama and Florida.
Global warming is at the crux of the business deal, but the views of the key executives couldn’t be more different. Aspen is an evangelist for climate-change action, chief executive Mike Kaplan even traveling to Washington D.C. several years ago to testify in favor of cap-and-trade legislation. Jim Cooper, the president of Oxbow Mining, says flatly that he doesn’t believe in it. “I don’t believe in man-made climate change,” he says.
Yet there they were this summer, the Oscar and Felix of Colorado commerce, shaking hands on a deal structured by Vessels that will yield three megawatts of electricity produced from the methane vented from the mine. Credit Vessels with gumption and persistence.
“I was never gifted with a high level of athletic coordination, so I tended toward endurance sports like running,” says Vessels, who works from 17th Street in Denver. “This was definitely an endurance story.”
Looking for holes
Vessels is a third-generation oil-and-gas man in Colorado. After he took control of the family business in 1984, his company drilled 250 wells, mostly seeking natural gas in the Wattenberg field northeast of Denver, the Piceance Basin west of Glenwood Springs and the Washakie Formation north of Craig. His company also built compressor stations and laid more than 100 miles of gas-gathering pipeline. Trying to capture escaping natural gas was “always a pesky problem,” Vessel says. “You are always looking for holes. The last thing we wanted was a loud ka-boom.”
After selling the company in 1998, Vessels went to Great Britain and then Germany, both times to study how methane escaping from coal mines could be put to good use. He calls it a “wasting resource.” He found the Europeans – and others around the world – already had it figured out.
Methane from landfills is increasingly harnessed to produce electricity, both in Colorado and elsewhere, as is manure from dairies. But almost nothing has been done in the United States to harness methane from coal mines.
Coal mines have long been cursed by methane. The primary constituent of natural gas, it is explosive at concentrations of 5 percent to 15 percent in air. To detect the gas, miners took canaries with them underground. In 1981, explosion of methane in the now-abandoned Mid-Continental Coal Mine, southwest of Carbondale, killed 15 men.
To reduce the danger, operators must vent the methane. Spewed into the atmosphere, methane constitutes what most climate scientists say is a significant threat because of its ability to trap heat in the atmosphere. It is much less common that carbon dioxide and dissipates more readily. But measured over a century’s time, methane is 23 times more potent than carbon dioxide.
Forming Vessels Coal Gas Co., Vessels began shopping his idea of tapping the methane already being vented by coal mines to electrical suppliers in 2005. He got interest, but no commitments. Xcel Energy, the state’s largest electrical provider, retreated when cap-and-trade legislation faded in Washington. Vessels estimates he talked with 10 to 15 utilities.
The crux of Vessels’ problem was that electricity from methane costs more than electricity produced by burning coal or natural gas. It might be cheaper than solar, and perhaps than wind, or even methane from landfills or feedlots. But it is not included in the mandated renewable energy portfolio applied to utilities in Colorado.
“One of my pet peeves is that agriculture methane is ‘good,’ but coal mine methane is ‘bad,’” says Vessels. “Because we ‘hate’ coal.”
Beyond everyday economics
Finally, Vessels talked with Holy Cross Energy. “That was my turning point in spades, plain and simple. It was the very, very first time I met people who were as positive as they were about doing something (with the methane),” he says of his first meeting with Del Worley, the manager of the Glenwood Springs-based electrical cooperative, and energy adviser Randy Udall.
Holy Cross is heavily invested in coal. It owns 8 percent of the new Comanche 3 coal-fired power plant in Pueblo. But it also has customers, especially in the Aspen and Vail areas, who want a reduced carbon footprint and are willing to pay slightly higher prices. The cooperative has already surpassed the state mandate for cooperatives of 10 percent for renewables and is pursuing an internal goal of 20 percent. Directors several years ago decided to expand the tent of renewables to include electricity produced by coal mine methane.
Holy Cross will not divulge how much it will pay for the methane electricity, but a tariff sheet released in July specified a rate of 8.5 cents per kilowatt hour for this year, escalating in coming years.
“If you want to be serious about reducing methane emissions, you need to provide incentives to make it happen beyond everyday economics,” Vessels says.
Sealing the deal with Oxbow took a little longer. Vessels describes a “turning curve” as opposed to a turning point. Crucial was making it clear that the methane-capture project would be subordinate to the mining at Elk Creek, which currently has a payroll of 351 people. Coal, not methane, provides the payday at the mine, located near the hamlet of Somerset, a few miles from Paonia.
Mining in the North Fork of the Gunnison River Valley began in 1896. Three underground mines are operating. West Elk began operations in 2002. Oxbow, a subsidiary of Oxbow Carbon, founded by Bill Koch, of the famous family of Kansas-reared billionaires, expects the mine to continue producing 4 to 5 million tons annually through 2018. Methane released from the mining will actually increase after the mine has closed, says the company’s Cooper.
Cooper says Oxbow was drawn to the deal, in part, because Vessels was trying to turn a resource with no value into a public good. That’s what coal miners see themselves doing. In this case, as with coal, there will be financial benefits extending beyond the direct parties involved, says Cooper. Some money from sale of mineral rights trickle to the state’s schools. But the key to all this getting done, says Cooper, was the persistence of Vessels.
Aspen Skiing is the final key party in the deal. The company is fronting $5.4 million for the trio of the methane-converting engines that will be placed at the mine vents. That’s 90 percent of the front-end cost. In return, Aspen makes good on its carbon-busting vows and can tell the world about it. But Chief Financial Officer Matt Jones also reports a low-risk, high-margin profit. Other companies, he says, should follow Aspen’s example.
For about a decade, the Aspen Skiing Co. tried desperately to deliver actions matching its rhetoric about the urgent need to curb climate-altering greenhouse gases. It redeployed its snowmaking system at Snowmass, the largest of the company’s four ski areas, to produce a dribble of electricity during spring runoff. It installed high-efficiency boilers for the forced-air heating at its flagship hotel, the Little Nell, and retrofitted its headquarters building to use less energy.
It installed solar panels. The largest array was erected by a public-private partnership at a school in Carbondale. The company paid $1 million and reduced its carbon footprint by 1 percent.
Aspen, which has 3,700 employees at peak season, investigated the feasibility of installing wind turbines atop the Snowmass ski area, the largest of its four ski areas. It reviewed the potential for installing hydroelectric turbines in the Colorado River at Palisade. Both had troubling, deal-killing aspects.
Then Vessels came courting last year. The great risk is if the coal mine produces fewer methane emissions than projected. Analysis of past emissions and future mining plans shows that risk is minimal. “There might be enough methane to continue 20 years or more, but we think 15 years is the worst-case scenario,” Jones says.
Keeping on pitching
Aspen expects to make 12 percent in annualized returns. But while making a handsome buck, Aspen can soon boldly proclaim that it has offset 100 percent of energy use – electricity, natural gas, diesel and gasoline – at its ski areas, hotels and other operations. And it did so in triplicate, testimony to the powerful heat-trapping properties of methane.
“To achieve the same amount of carbon reduction, we would have had to put a half-billion dollars into solar,” Jones says. “The bang for the buck here is enormous. There’s no comparison.”
Randy Udall credits Vessels as the crucial link in making the deal happen. Holy Cross was ready to go forward, but Oxbow Mining was reluctant at first. “You can’t force the mines into the marriage. They have to want to come on their own volition,” he says.
“Tom was able, through persistence, to convince Elk Mine to play ball. He’s one of those guys who doesn’t get discouraged easily and was able to meet with them repeatedly,” Udall says.
Vessels says his background as a landman helped. “I was accustomed to the need to have relationships be more important than paper contracts. I personally do not believe in the lawyer-intensive contracts process. That is an American approach. I think at the end of the day you need to stay in touch with your business associates and know their businesses.”
Both Vessels and Aspen hope that this is the foundation for more methane capture operations in Colorado and the Rocky Mountains. Beginning with this three-megawatt operation, Vessels sees 50 megawatts of what he describes as low-hanging fruit from the Elk Creek and other mines, and conceivably another 100 megawatts in Colorado. Cooper says the most likely mines are those in the North Fork Valley, near Durango, and in the Trinidad-Walsenburg area.
This isn’t much electricity when you consider that the trio of Comanche power plants at Pueblo collectively generate 1,426 megawatts. But it is a huge amount of greenhouse gas reduction, as Aspen Skiing Co.’s numbers suggest. Further deployment may depend upon whether the renewable energy mandates are expanded to include methane from coal mines. Democrats in the Colorado Legislature rejected a proposal to do so, though it may be included in a broader initiative being studied by environmental groups to raise the renewable portfolio standard.
The technology for this is by no means glamorous. There’s nothing visually arresting like the sheen of solar panels or the graceful swoosh of wind turbines. The piston engines converting the methane to power will be loaded off a flat-bed truck and placed onto a leveled gravel platform amid the oak brush of the West Elk Mountains, then hooked up to power lines. They can be easily moved.
Economics you’ve got to like
Private companies usually keep their profitability statistics close to their vests. Aspen, though, has eagerly shared its financial details. Jones says his company may try to do more and hopes other companies also chase the profits of methane capture.
“It is a boring, kind of technical and unremarkable project that knocks the ball out of the park from an environmental perspective,” Jones says. “And it is something you would invest in even if it didn’t.”