FARMINGTON — Navajo Nation President Ben Shelly signed a 25-year lease extension for the Four Corners Power Plant on Monday, a major step toward ensuring the decades-old plant continues to operate.

Shelly's approval, revealed Tuesday, cements an agreement with Arizona Public Service Co., the utility that operates the plant. APS threatened to begin closing the plant if the tribe did not approve a lease extension by the end of March.

The current site lease will expire in July 2016. The extension allows the plant to continue operating until 2041.

"My priority is to protect over 700 Navajo people employed at both the Four Corners Power Plant and BHP Billiton, including their families who rely on a steady income," Shelly said in a prepared statement. "This is a step in the right direction, and it's a business decision we did not take lightly."

BHP Billiton operates Navajo Mine, which fuels Four Corners. The coal-burning power plant, one of the nation's largest, is a major contributor to the Navajo Nation's treasury. The plant annually generates approximately $65 million in taxes, $100 million in employment payroll and the newly negotiated $7 million lease payment.

The annual payment is an increase from the $1.5 million the tribe has received, on average, in the current lease. State Sen. Lynda Lovejoy, D- Crownpoint, who opposed Shelly in the recent presidential election, called the $7 million payment "meager."

The tribe's Minerals Department estimated that failing to sign the lease agreement would result in an annual shortfall of $42 million to $50 million beginning in 2016.

The plant and adjacent coal mine have become integral parts of the economy for the Navajo Nation, in some cases employing multiple generations of the same family.

APS spokesman Damon Gross said the utility was pleased by Shelly's approval.

"This is an important step in ensuring the long-term viability of the Four Corners Power Plant and preserving a reliable source of revenue for the people of the Navajo Nation for years to come," he said.

APS next must negotiate a contract with BHP Billiton to supply coal to the power plant. The current coal agreement also expires in 2016.

"We look forward to continuing those discussions," Gross said.

A $294 million deal hinges on the contracts. APS proposes to buy majority stakes in units 4 and 5 at the plant from a California utility and shut down the three oldest units. That plan faces approval from the Arizona Corporation Commission, the California Public Utilities Commission and the Federal Energy Regulatory Commission.

"If you're a baseball fan, we're still in the first couple of innings of a nine-inning game," Gross said.

Without the three older units, Four Corners' generating capacity would decline from 2,060 to 1,500 megawatts. The plant generates enough electricity for about 500,000 customers.

Four Corners faces significant regulatory hurdles. New Mexico's cap and trade program is scheduled to take effect in 2012, and the U.S. Environmental Protection Agency is looking harder at haze, which is linked to nitrogen oxide emissions.

"Four Corners Power Plant is the No. 1 emitter of nitrogen oxide in the country, and it's directly related to reduced visibility at Mesa Verde National Park and 15 other class-one areas," said Mike Eisenfeld, New Mexico energy coordinator for San Juan Citizens Alliance, an environmental group.

The Clean Air Act regulates haze that affects areas designated as "class one," including Mesa Verde.

Eisenfeld said APS and other utilities should commit to using more alternative energy. "They're perpetuating the reliance on coal as other parts of the country are turning to less intensive ways of producing electricity," he said.

Four Corners' first unit went online in 1963. Some question how much utilities will spend to retrofit aging, coal-fired power plants.

"Most coal plants were never thought to have more than a 40- or 50-year life span," Eisenfeld said. "Four Corners Power Plant is right at year 50, and it's falling apart."

The lease requires APS to continue its annual lease payments to the Nation if the power plant shuts down before 2041.

Chuck Slothower: cslothower@daily-times.com