FARMINGTON — The Navajo Nation is moving forward with plans to acquire the Navajo Mine after the Arizona Corporation Commission decided not to continue studying deregulation of that state's energy market.
Still unclear is how the purchase will be funded.
The mine, located in the chapters of Nenahnezad, San Juan, Tíistoh Sikaad and Upper Fruitland, is the sole coal supplier to the Four Corners Power Plant.
Since last October, the tribe has been exploring the idea of purchasing the mine from its owners BHP Billiton New Mexico Coal, a subsidiary of Australia-based BHP Billiton, in order to preserve 800 jobs at the mine and the power plant and to preserve millions of dollars in revenue.
"We're full speed ahead to try to finish the deal now," said Pat Risner, asset president of the mining company's New Mexico Coal division.
In April, the Navajo Nation Council and Navajo Nation President Ben Shelly approved the creation of the Navajo Transitional Energy Company LLC, or NTEC, to oversee the purchase of Navajo Mine and, if the tribe moves forward, its operation.
Steven Gundersen, with 19 years of business experience including mergers and acquisitions, was named management board chairman in May.
In a Sept. 12 report to the Naa'bik'íyáti' Committee, Gundersen summarized the key components that have to be in place in order to pursue the purchase.
The report was originally intended for the Budget and Finance Committee but committee members moved it to the Naa'bik'íyáti' Committee, whose membership consists of a 24-member council.
Gundersen said those components are having NTEC purchase a supply bond and a reclamation bond as required by U.S. Office of Surface Mining. A credit facility also must commit to the deal.
And a coal supply agreement must be in place between NTEC and the Four Corners Power Plant, which is owned by Arizona Public Service Co.
The existing coal supply agreement ends in July 2016.
The new agreement, if approved, is expected to last until July 2031.
When negotiations began earlier in the year, the closing date for the purchase was set for July 1 but moved to Dec. 31 because the Arizona Corporation Commission voted May 9 to explore the possibility of deregulating the state's retail electric market.
On Sept. 11, the commission voted 4 to 1 to end that investigation.
If the Arizona commission implemented deregulation, it would have allowed consumers to choose where to purchase electricity.
The decision not to pursue deregulation reopened the possibility of purchasing the mine before the December deadline and allows Arizona Public Service to move ahead with its plan to purchase units 4 and 5 of the power plant from Southern California Edison, Gundersen said.
"We agree with the Arizona Corporation Commission's decision ... to close its docket concerning deregulation of the retail electric market in Arizona," APS said in a statement.
Arizona Public Service filed papers stating its intent to move forward with purchasing the units with the U.S. Securities and Exchange Commission.
After purchasing units 4 and 5, the utility plans to invest in pollution controls so the plant will comply with U.S. Environmental Protection Agency regulations.
That also means the Navajo Mine will continue supplying coal to the power plant.
Gundersen told delegates that the NTEC management board, Speaker Johnny Naize, the Office of the Speaker and staff from the executive branch met with the Arizona commission to explain how deregulation would impact the mine purchase and the tribe's financial future.
"Through our extensive outreach and education campaign we were able to influence and straight out educate members of the commission and their advisers," he said.
During Gundersen's report, he did not disclose the mine's price tag -- although in a March report from the tribe's due diligence team, the listed cost was $85 million -- he explained that financing details would have to be discussed in executive session.
"Everything hinges on NTEC receiving a written, firm commitment from the Navajo Nation to provide financing for purchase price as well as qualifying credit," Gundersen said then added that under the mine management agreement, a subsidiary of BHP would operate the mine for three years for NTEC.
LoRenzo Bates, chairman of the Budget and Finance Committee, said its investment committee has been approached by NTEC about finance but at the time they were concerned with the Arizona commission's deregulation inquiry.
After the process was restarted, some have expressed concerns about financing.
As an organization, NTEC has no money and its members are volunteering their time, so it has no assets or source of revenue to payback any loan issued by the tribe. But there are deadlines that NTEC has to meet in order to complete the purchase, Bates said.
"Funding has to be, needs to be decided," he said.
Even though the tribe formed NTEC, there was no funding guarantee and that is something the Budget and Finance Committee, as well as the council, will decide, he said.