The 10 obstacles to keeping the Navajo coal plant open

Government and Native American officials hoping to keep the Navajo Generating Station and its mine in operation are facing serious challenges.

Salt River Project, an owner and the coal plant’s operator, says it needs a new lease by July 1 with the Navajo Nation, which owns the property near Page. Otherwise, SRP says it must close the plant to allow enough time to tear it down and vacate Navajo land by Dec. 22, 2019, when the current lease expires.

SRP and the other utility owners want to end their participation in the coal plant by then because natural gas is a cheaper source of electricity. The U.S. Department of the Interior also owns a share in the plant and hopes to keep it open, as does Peabody Energy, the St. Louis company that operates the Kayenta Mine.

The Navajos and Hopis hope to preserve the 750 jobs the plant and mine provide.

SRP has offered to negotiate a new lease so that the plant could run another 21⁄2 years, and utility officials

“If the plant doesn’t have a short-term future, it doesn’t have a long-term future.” SCOTT CAMERON ASSISTANT INTERIOR SECRETARY, WHO HOPES TO KEEP NAVAJO GENERATING STATION OPEN

said they would help a new owner run the plant beyond 2019.

But both the temporary extension and longterm hopes to run the plant are facing challenges. Here are 10 of them:

1. Navajo approval

Navajo Nation leaders must approve legislation to extend the lease. Even though President Russell Begaye promised a group of miners gathered in Phoenix last week that would happen on Friday, the legislation was not introduced to the Tribal Council as planned.

Begaye and Navajo Nation Speaker LoRenzo Bates also have conflicting ideas about how the tribal lawmakers should handle the lease. Last week, Bates told a group of officials meeting with the Interior Department that the lease would likely go through four council committees, where it could be amended before going to the full council. Begaye later told the same group that he hoped the lease would warrant emergency status and not face any committees or amendments.

SRP has negotiated a rough outline of the lease on behalf of the other utilities that own the plant, and if the Tribal Council amends the lease, the other utility owners will have to approve any changes.

“If the plant doesn’t have a short-term future, it doesn’t have a longterm future,” said Assistant Interior Secretary Scott Cameron, whose agency hopes to keep the plant open.

2. Profitability

Even if the tribe approves a lease on time, SRP officials have serious doubts that any owners could step in and run the plant profitably beyond 2019.

Peabody Energy has hired investment banker Lazard to find potential buyers. Lazard officials have said new operators could find ways to cut costs and make money selling power from the plant.

That’s unlikely, SRP officials said.

“Without federal subsidies, we don’t see how a new owner can operate cost-effectively,” said Mike Hummel, deputy general manager for SRP.

“We have all owned and operated coal plants,” he said of the utility owners. “We are all very good at it, and we are all not able to make it work. That’s why the owners are choosing to exit. “

3. Time crunch

Lazard has not only a hard job, but also little time. SRP officials said they need a new owner identified by Oct. 1 to begin negotiating transfer of the plant, or they’ll need to proceed with plans to tear it down.

In a heated exchange with Navajo officials last week, Lazard managing director Juan Correa said the company couldn’t identify specific potential buyers until as late as September. Bates and Begaye were frustrated that would leave 30 days to negotiate a complex transaction.

At the conclusion of the exchange, Correa fainted and was helped to a chair.

4. Maintenance bill

Any buyer will face about $132 million in routine maintenance on the plant that must be paid before 2019. SRP is running the plant with plans to close in 2019 and is foregoing some repairs that would be needed if the plant were to run longer.

If a buyer steps in and wants to take over in 2020, it will either have to prepay SRP to make those fixes on schedule or take control of the plant with increased exposure to the repair costs. SRP officials said the plant is being run safely but that some maintenance is unnecessary if the plant is closing.

5. Operating costs

The plant might sell at a bargain, but the costs to run it are substantial.

Considering SRP and the other utility owners would have to pay as much as $170 million to tear down the plant, they would likely agree to sell for very little.

“The actual capital cost to buy that plant would not be very much,” Hummel said.

But the $132 million maintenance backlog is just the beginning. Each year, the plant requires about $100 million to $250 million in upkeep, and 2020 would be no different.

Begaye said he is frustrated with the “spin” SRP is putting on the plant’s operations.

“If I wanted to buy it and I heard this presentation today, I would have serious concerns,” Begaye said after the Interior Department meeting where SRP detailed the expenses.

6. New customers

If someone buys the plant, they’ll have to find new customers to take the power. The Bureau of Reclamation, which is under the Interior Department, uses its share of the electricity to run pumps on the Central Arizona Project Canal. CAP management has said even if the plant remains open, the canal will rely on a more diverse power supply going forward.

SRP also already has replaced 60 percent of the power it gets from the coal plant through contracts for power from natural-gas plants through 2028. SRP is saving money through these contracts compared with running the coal plant, and it’s likely the other utility owners will make the same move.

7. Water issues

Tribes that get water from CAP don’t want to pay a premium for coal power in their water bills.

While the coal plant and mine are economically important to the Navajo and Hopi tribes in northern Arizona, tribes in central Arizona get Colorado River water from CAP, along with Phoenix and Tucson.

Gila River Indian Community Chairman Stephen Roe Lewis told officials from the Navajo and Hopi tribes during the Interior Department meeting that the so-called CAP tribes want the best outcome for their neighbors in the north, but that they are not willing to overpay for water to support the coal plant beyond 2019.

8. EPA concerns

The environmental concerns that have threatened the coal plant in the past have not gone away. The Environmental Protection Agency still wants to see one of the three units shut down in 2019 and environmental controls added by 2030 if the plant runs beyond that date.

Even officials who hope to see the plant remain open, such as Begaye, talk about running it to 2029 on the assumption that adding the new pollution controls would be prohibitive.

Environmental regulators also would need to approve the new ownership structure.

9. Shutdown costs

The decommissioning of the plant will need to be negotiated among new owners.

All owners share in the decommissioning costs, and if a new owner comes in to run the plant for 10 years or so, all the owners who already have a financial responsibility to decommission the plant will have to negotiate with the new owner on how that cost will be split once the plant eventually closes.

Those discussions are already complicated because the Los Angeles Department of Water and Power is still responsible for some decommissioning expenses, even though the LADWP sold its share of the plant to SRP in 2015.

Some of the things SRP is negotiating in the shortterm lease extension are the portions of the plant, such as the railroad, that the Navajo Nation wants to retain. If a new buyer comes along by October, those details immediately would need to be renegotiated.

The plant owners also are responsible for reclamation of the mine.

10. Coal-plant foes

The public opposition to burning coal is not inconsequential. Environmental groups have challenged the operations of coal plants in the Four Corners area for decades and are highly likely to be involved if new owners try to keep the plant running.

Environmentalists could challenge the regulatory approvals from the EPA, the Interior Department’s involvement and any number of other approvals needed to transfer ownership.

Even if new owners assume they could triumph against such legal challenges, the lawyers’ fees represent yet another expense to take over the plant.

And even if they can write that check, the threats present a challenge in finding a buyer for the power from the plant.