E & E News
Benjamin Storrow

Will anyone buy this huge coal plant? Trump hopes so

Published 10/2/2017

Peabody Energy said today it has found a number of potential buyers interested in operating the Navajo Generating Station, keeping alive hopes that the massive Arizona coal plant will continue running beyond its planned 2019 closing date. The St. Louis-based mining firm did not disclose the list of buyers or the number of parties interested in operating NGS, as the facility is often called.

But in a sign of the simmering tensions surrounding one of the West’s largest coal facilities, the plant’s operator said it will continue planning for its closure even as it provides information to perspective buyers.

The Trump administration has staked much on the plant’s future, with Interior Secretary Ryan Zinke labeling its continued operation a “top priority” (Climatewire, June 28). Washington’s efforts have been cheered on by the Navajo and Hopi tribes, whose economies are intertwined with the plant, and Peabody Energy Corp., which operates a mine that serves the facility.

The four utilities with financial interests in the 2,250-megawatt plant have remained adamant that they will relinquish their position in NGS when a recently renegotiated lease with the Navajo expires in 2019. They maintain that the coal behemoth is uneconomical in a market dominated by low natural gas prices. Salt River Project, NGS’s plant operator and majority owner, set yesterday as the deadline for finding a new owner.

The process of finding a new buyer has been overseen by Lazard Frères & Co. LLC, a consulting firm hired by Peabody.

“We are pleased with the robust response to the plant’s ownership transition process to date,” said George Bilicic, Lazard vice chairman and global head of power, energy and infrastructure, in a statement. “In the next phase, we will continue an intense focus to develop a new ownership structure, working toward a final selection of investors and negotiating definitive agreements by the end of the first quarter of 2018.”

Salt River Project has signed nondisclosure agreements with 14 parties interested in reviewing NGS’s financial information, maintenance schedules, union contracts and regulatory agreements, said Scott Harelson, a spokesman for the utility. The power company plans on pursuing two parallel tracks, he said. If a group of prospective buyers emerges today, Salt River Project will continue to share information that would facilitate a sale. At the same time, the utility will continue planning for the plant’s shutdown in 2019.

The plant’s owners will need to decide soon whether to begin spending money to decommission the plant, he said.

“We have indications that there are interested parties, but we don’t know details about them or the level of interest,” Harelson said. “To meet the timelines and contractual obligations we have with the lease, with respect to our employees and our communities, these things need to happen relatively soon.”

Arizona Public Service Co., Tucson Electric Power and NV Energy are the other utilities with ownership stakes in the plant. The Bureau of Reclamation also maintains a 24.3 percent interest in NGS.

The government’s ownership has helped make NGS a test of Trump’s campaign promise to revive the coal industry. Federal officials have discussed easing environmental regulations in a bid to bolster the plant and sought to facilitate efforts to keep it open (Climatewire, March 2).

“If NGS closes, it will be very damaging for the administration. The only thing that prevents NGS from continued operation is will and imagination,” said Mike McKenna, an energy lobbyist who briefly served on Trump’s transition team. “Closure is a preventable tragedy. The administration needs to prevent it.”

Dan DuBray, a Bureau of Reclamation spokesman, said the bureau is focused on helping to find a new owner to operate the facility.

Coal supporters argue that the plant is a valuable hedge against natural gas, which has gained market prominence in recent years.

The plant’s closure would be a serious blow to Peabody’s Kayenta mine and the Navajo and Hopi tribes. NGS and Kayenta are two of the largest employers on the reservations, and they account for a large portion of the tribes’ tax haul.

Arizona’s population centers could also suffer, said Suzanne Kinney, the interim manager of the Arizona Mining Association. NGS was built in part to power the pumps of the Central Arizona Project, the aqueduct system that delivers water from the Colorado River to Phoenix and Tucson.

“It’s one of the reasons Phoenix, being a desert city, has been able to grow and thrive in the way it has,” she said.

Beth Sutton, a Peabody spokeswoman, said the company was pleased with the caliber of companies interested in the plant and said the process of finding a new owner is on track.

“The year-over-year increase in natural gas prices and high demand periods in the Southwest causing power prices to spike demonstrate why the Navajo Generating Station is essential to an affordable and reliable energy system for Arizona’s power and water,” she said.

Still, NGS has seen its customer base dwindle. The Los Angeles Department of Water and Power sold its stake in the plant in 2015. The Central Arizona Project, NGS’s largest customer, says it is now cheaper to buy power on the open market (Climatewire, April 10). And NV Energy was planning a departure from the plant to comply with a state prohibition on coal-fired generation.

“To me, SRP is a pretty efficient utility. If they can’t make money running the plant, I don’t know who can,” said Amanda Ormond, a former director of the Arizona Energy Office who now serves as the managing director of the Western Grid Group.

Timothy James, an economics professor at Arizona State University, said the Trump administration’s attempt to ease environmental regulations is a bright spot for the plant.

But the nationwide shift to natural gas leaves NGS with few potential buyers, he said. Arizona’s utilities already have turned their backs on the plant, and merchant generators, which compete in the open market, are unlikely to turn a profit on an aging coal plant.

“I don’t see how it could compete as a merchant generator in the open market with gas,” James said. “I think fundamentally what is true here is the markets are saying coal doesn’t have much of a future. Perversely, it doesn’t have anything to do with the environment anymore.”