Sunday deadline for interest in Navajo coal plant approaches
Posted September 28
FLAGSTAFF, Ariz. — A coal-fired power plant in far northern Arizona is set to shut down in 2019 unless a new owner can be found. The deadline for interested buyers is Sunday.
The operator of the 2,250-megawatt Navajo Generating Station, the Salt River Project, says the deadline will determine whether to maintain the plant for long-term use or plan to tear it down. The utility and other owners voted this year to shutter the plant on the Navajo Nation near Page because natural gas became a cheaper option for energy production than coal.
Peabody Energy, the owner of the coal mine that feeds the power plant, sees it differently. It hired investment firm Lazard earlier this year to look for new owners.
The Navajo Nation and the Hopi Tribe want a new owner, too, because their budgets rely heavily on the vast reserves of coal mined from near Kayenta. Environmentalists who have fought the power plant on health and environmental grounds say the tribes instead should focus on renewable energy.
Here is a look at the economics of the plant and what's expected Sunday:
WHAT IS THE SITUATION WITH THE PLANT?
The plant was built in 1969 to power water delivery to the state's desert region through a 336-mile canal system. The sole coal supplier is Peabody Energy's Kayenta Mine, which ships the coal to the plant via rail line.
The plant became a steady supplier of electricity to Arizona, Nevada and California over the decades. But utilities increasingly are switching from coal to natural gas, which is cheaper and better for the environment, or renewables. As a result, the plant's owners say financial considerations make it impossible to keep the location open, and they want to shut it down. The loss of the plant would kill the coal mine, where hundreds of tribal members work.
WHO IS LOOKING FOR NEW OWNERS?
Interior Secretary Ryan Zinke says long-term operation of the plant is among the department's top priorities.
The U.S. Bureau of Reclamation owns a portion of the power generated from the plant and says it has to look out for the best interests of tribal governments. It is keeping the players talking about potential new ownership, cost-reduction at the power plant and mine, and new power buyers.
But the customer base is dwindling. California cut out power from coal, and Nevada is doing the same. The largest user of power from the Navajo Generating Station, the Central Arizona Project, is in favor of ditching coal, too. Officials say they could have saved $38.5 million last year by buying power on the open market.
Peabody argues that coal is more stable than natural gas, and it would offer a reduced price for it.
WHO ARE THE POTENTIAL NEW OWNERS?
No one will say. Prospective owners have signed confidentiality agreements. SRP gives them access to information on the plant, past performance, maintenance schedules and cost, existing lease agreements, the coal supply from Peabody Energy's Kayenta Mine, staffing and union contracts through a virtual data room.
SRP spokesman Scott Harelson says the utility has 14 signed non-disclosure agreements but it doesn't know the level of interest.
Peabody spokeswoman Beth Sutton wouldn't say whether any serious contenders have been found, only that the company is pleased with the caliber of firms interested in the process.
WHAT IS THE VALUE OF THE PLANT?
Construction of the plant cost $650 million, according to SRP. Another $465 million went to pollution controls in later years. Harelson said the value now depends on how much money could be made running the plant.
The owners don't expect to make a huge profit if it sells.
Operations and maintenance costs totaled $204 million in 2016. Environmental regulations also would factor in to future costs. The plant owners committed to shutting down one of the three units by 2020 to cut haze-causing nitrogen oxide emissions and install pollution controls on the other two units by 2030.
WHAT HAPPENS OCT. 1?
Harelson said it's a firm deadline for interest from potential owners.
Others see it as a softer deadline considering the Interior Department and Los Angeles Department of Water and Power, a former owner, have until Dec. 1 to sign off on the lease with the Navajo Nation that extended the plant's operation through 2019.
Harelson said Lazard has been communicating with the Navajo Nation, and SRP expects a list from the tribe by Sunday on interested buyers. Lazard didn't return a call from The Associated Press. But a managing director, Juan Correa, told Arizona regulators earlier this year "the universe of buyers is relatively small."
WHAT'S IN IT FOR TRIBES?
The Hopi Tribe's interest is in coal royalties that make up 80 percent of its budget. Few of its members work at the power plant or mine.
Hundreds of jobs for Navajos and 30 percent of the tribe's budget would be lost if the plant and mine close. A new owner would have to negotiate a lease with Navajo.
Meghan Cox, a spokeswoman for Navajo President Russell Begaye, said the tribe is hopeful for ownership proposals and looks forward to reviewing them.
Percy Deal, a Navajo who lives south of the coal mine, says the Navajo Nation should stop wasting time thinking a new owner will come aboard. He said the economics don't support keeping a coal plant open.