Death of Navajo coal plant deal will have wide-ranging consequences for tribes
With the only potential buyer backing out of a deal Thursday, the future of the Navajo Generating Station coal plant near Page, and the Navajo and Hopi economies that rely on it, has never been bleaker.
It's now a lock that the biggest coal plant in the West and the mine that feeds it will close in December 2019, if not earlier, and there is no proposal from anyone to stop it and little hope it would ever reopen.
Middle River Power of Illinois and its affiliated New York investment firm, Avenue Capital, were considering taking over the plant, but they announced Thursday those plans would not work out.
The news prompted a desperate request from Peabody Energy, which operates the Kayenta coal mine on Navajo and Hopi land and will have nowhere else to send the shiny black rock when the plant closes.
"We urge the U.S. government to help lead efforts to ensure ongoing operation of the plant and mine for the benefit of the tribes and the people of Arizona," said Kemal Williamson, president of Peabody Americas. "Peabody and others continue to aggressively work toward that goal."
But short of a heavy-handed intervention by the federal government, the deal with Middle River Power offered the last, best hope to keep jobs for the approximately 750 mostly Native Americans who work at the plant and mine when they are fully operational.
The four utility owners — Salt River Project, Arizona Public Service Co., Tucson Electric Power and NV Energy — voted in February 2017 to close the plant in favor of cheaper power from natural-gas plants.
SRP has already begun to wind down operations at the plant, transferring workers to other openings at the utility where possible and replacing them with contractors.
The utility's lease allows it to continue running the plant through Dec. 22, 2019, and the company expects a small staff of mostly contractors running the facility by that point, if it even runs that long.
SRP has arrangements to pay the Navajo and Hopi tribes coal royalties through that date if it stops taking coal before then, which it could do to get a jump on decommissioning the plant. That has to be done once operations cease.
The U.S. Bureau of Reclamation also is a plant co-owner, and has tried to find a way to keep the plant going.
The government's share of the plant is used to run pumps on the Central Arizona Project canal to get Colorado River water to Phoenix and Tucson. CAP officials said their customers will save money with the plant's closure.
Peabody hired a company called Lazard to help identify new owners and Middle River was the best hope it brought forward.
SRP officials said they would turn the plant over to anyone with a viable plan to keep it running, thus maintaining a linchpin in the economies of the Navajo and Hopi tribes, as well as nearby communities such as Page.
And initially, 16 companies at least showed an interest in taking the plant over. They signed confidentiality agreements that allowed them to review operating data and financial details of the plant from SRP.
But only Middle River and Avenue Capital came forward with a joint proposal, and now they're gone.
'The future is renewables'
SRP officials said earlier this month that even in the long-shot chance that Middle River were able to take over the plant, the facility would have to go dark for some amount of time beginning late next year.
That's because the new buyer wouldn't be able to catch up on the needed maintenance that SRP is forgoing as it prepares for shut down.
If a new buyer were to emerge today, that company would be even further behind than Middle River, which essentially guarantees the plant and mine are nearing their end.
Environmentalists, who have long wanted to see the plant and mine close, said the past year would have been better spent lining up renewable-energy projects to attempt to replace the jobs that will be lost when the coal operations shutter.
"The time and money spent over the last year to find someone to buy the costly coal plant distracted from a clean-energy transition that our people desperately need," said Nadine Narindrankura of the environmental group Tó Nizhóni Ání.
"Navajo leadership needs to seize this moment. The opportunity has presented itself once more to prepare for a successful transition away from coal. The future is in renewables, not in a dead coal market."
Renewable energy development is taking place, but not at a fast enough clip to replace the coal jobs.
Last month, developers broke ground on a the second phase of a solar plant near the coal mine that sends power to the tribal utility and SRP. But the facility produces only a fraction of the power of the coal plant and a few jobs.
Tribes will be economically harmed
The Navajo and Hopi tribes rely heavily on the income from the Kayenta mine on their land for revenue and jobs in a part of the state where unemployment is about 50 percent.
For this reason, the tribal governments have fought hard to identify new owners and rally political support to keep the facilities running. But the challenges have been significant.
The Navajo Nation last year got about $40 million of its $173 million budget from coal royalties and lease payments from the power plant.
But the large reservation has multiple revenue streams, including casinos and other power operations.
The small Hopi Reservation is landlocked within the Navajo land, and has no other mines or major developments. Last year about two-thirds of its $18 million budget were derived from coal operations.
Because of its critical role, the tribes continue to hold out hope someone will take over the plant to keep it running.
"NGS has a big impact, not only to the Navajo Nation and Hopi Tribe but also to schools, social programs and services provided to cities like Page and counties across the Four Corners," Navajo President Russell Begaye said.
In addition to the jobs at the mine, about 350 Hopi government jobs are supported by that revenue, meaning the tribe will need to take a hard look at the services it provides when that revenue dries up.
The mine is connected to the power plant by a 78-mile electric railroad. But if the plant is decommissioned, that railroad will essentially lead to nowhere.
The Navajo Nation is poised to take over that railroad when the plant is town down, but it's unclear what the tribe could do with it, if anything.
Another rail line would be required to get the coal to another market, but it's unclear who would fund such an investment with coal plants closing around the country and the future of the commodity in doubt.
Middle River blames others
Middle River and Avenue Capital blamed the deal falling through on unspecified "developments" in California and Arizona.
A California utility had already pulled out of the Navajo coal plant years ago, and state requirements prohibit investment in coal facilities. But the Golden State also just enacted a requirement that all of its electricity come from carbon-free sources by 2045, further diminishing any chance Navajo coal would find a market there.
Coal has the most carbon emissions of any major electricity source.
Arizona voters will decide in November whether to require half the state's power to come from renewables like solar and wind by 2030, further reducing the market for coal.
Middle River and Avenue Capital also blamed the deal's collapse on the environmental review required for a new owner to take over and utilities in Arizona reluctant to contract for power from the partners should they take over NGS.
"We continue to believe a viable economic profile for the plant is possible beyond 2019, however we have not been able to secure commitments from counterparties to purchase a sufficient amount of power generated from NGS to enable a workable operating paradigm," Middle River and Avenue Capital wrote to the Navajo Nation in a letter on Thursday.
However, SRP's CEO Mike Hummel strongly suggested on Sept. 10 this decision was coming when he briefed the utility's board of directors, telling them Middle River Power was much less optimistic than it had been.
"Maybe they are realizing for the first time the waters are a little deeper than they thought on Navajo Generating Station," Hummel told the board.
Hummel said the challenges included the required Environmental Impact Statement from the federal government and lease from the Navajo Nation for the plant.
And the Central Arizona Project had earlier detailed why utilities might be hesitant to contract with Middle River in its tenuous proposal to purchase the plant.
CAP Deputy General Manager Thomas McCann said last month that while CAP can negotiate for "firm" electricity from other utilities after 2019, all that Middle River was able to offer was a proposal for "contingent" service.
What that meant was that Middle River was only offering to sell power from the coal plant when it was operating, and the company planned to run the plant on a less frequent basis than the current owners to save money.
"CAP is being asked to forego energy diversity, and instead place full reliance (for power) on a single source under a new management strategy with unproven reliability," McCann wrote to energy regulators.
SRP officials declined to discuss any offers they saw for power from Middle River at the plant. But APS officials said they were unable to contract for power because the looming threat of the renewable-energy ballot initiative.
"Prop 127 in Arizona, as well as current or pending legislation in California and Nevada, threatens existing baseload generation of any kind, making it extremely difficult for APS to reasonably make new commitments of this type," APS said in a prepared statement.
Many fought for plant
Many fought on the plant's behalf, to no avail.
Arizona Corporation Commissioner Andy Tobin blasted SRP and the other owners for the decision to close the plant and tried repeatedly in the past year to get utilities to reconsider the plant's economics.
The Arizona Legislature passed a bill earlier this year that would exempt the coal from taxes, and the governor signed it.
Congressman Paul Gosar drafted legislation that would have exempted the plant from environmental requirements, but never introduced a bill.
Former Congressman John Shadegg took a job lobbying for the coal mine as part of its "Yes to NGS" campaign, which announced a lawsuit from the Hopi tribe to force CAP to buy the plant's power.
And an appointee of President Donald Trump suggested forcing Central Arizona Project to buy the plant's power.
Those efforts apparently were not enough to mitigate the risk Middle River would face in taking over the plant.