Ryan Randazzo

The Republic | azcentral.com

Peabody Energy hopes to find buyers for troubled Navajo coal plant

The coal company says new owners could run the plant profitably

The current owners have decided to get power from cheaper natural gas

Peabody Energy officials are positioning the Navajo Generating Station for new buyers to come in and take over the troubled coal plant, which would allow the company to continue selling coal to the facility.

Peabody’s Kayenta Mine in northern Arizona supplies the fuel for the power plant outside of Page, and mine officials told utility regulators last week the facilities can profit under new ownership.

The four utility owners of the power plant, led by Salt River Project, say it no longer is economical for them to run the plant. They voted to operate it no longer than 2019 and to close as soon as this summer if they can’t get a new lease agreement with the Navajo Nation, which owns the land.

The plant owners said the low price of natural gas makes that power source a better alternative. The federal government also is a part-owner in the plant, using its share of the power for pumping water in the Central Arizona Project canal.

The Bureau of Reclamation prefers to keep the plant running, but that will require someone to purchase the portion of the plant owned by SRP, Arizona Public Service Co., Tucson Electric Power and NV Energy.

MORE: When coal-fired power plant closes, this mine will die. So will a lifeline for one Native American tribe

Peabody officials said they are willing to lower the price of coal from their mine, and that if someone is willing to purchase the power plant, it could run profitably.

“Let me be clear, the Navajo Generating Station is an economically viable and essential resource to the state of Arizona,” said Brian Galli, Peabody group executive and chief marketing officer.

Can new owners help the coal plant?

Galli questioned the statements from SRP regarding natural gas being a cheaper alternative. He said Peabody has offered a lower, fixed price for coal through 2025 that would be competitive with natural gas.

“Prudent and responsible energy planning is done on a long-term basis and not on short-term price fluctuations,” he said. “The leaders in Arizona need to pay attention to what is being said about the long-term viability of the Navajo Generating Station. We believe there is another side to the story.”

Peabody hired Navigant consulting to provide an economic analysis of the plant, and Lazard to help locate new owners. Those plans will be discussed Wednesday in Washington, D.C., in the next in a series of Interior Department meetings scheduled to address the plant's problems.

Dale Probasco, managing director of global generation services for Navigant, said new owners could help the plant.

“Our analysis concluded the Navajo Generating Station can remain a viable and cost-effective resource in the region,” Probasco said. “It is one of the lowest cost resources in the region.”

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Juan Correa, managing director at Lazard, said that an independent power company could cut staff and run the plant when it's advantageous, rather than as an around-the-clock generator like SRP.

“We believe SRP is a good and well-respected operator, but there is plentiful evidence throughout a comparison of the facility’s operations vis-a-vis those operated by other independent power producers as to the potential for efficiencies,” Correa said.

He said any buyer would need to clear several hurdles, including:

A new lease with the Navajo Nation.

Long-term purchase agreements for the power from the plant.

An economic coal-supply agreement.

A good understanding of environmental regulations that will affect the plant.

“There is not a broad universe of independent power producers or investors who look at coal facilities in this environment,” he said.

'Understanding the impact' decisions will have

He said the plant is in good condition but it will be important that it is maintained, and that shutting down and sitting unstaffed for a length of time is a risk.

SRP officials said that the owners have voted to defer some maintenance on the plant with its future uncertain. Among the deferrals is an overhaul of Unit No. 1, which is scheduled to shut down in 2019 as NV Energy exits the plant, as the Los Angeles Department of Water and Power already has.

Overhauls of Units 2 and 3 in 2018 and 2019 also have been canceled, SRP spokesman Scott Harelson said.

"Only projects necessary for employee safety are in our future plans," he said. "We continue to conduct 'breakdown' maintenance whenever it makes economic sense."

Corporation Commission Chairman Tom Forese said he has concerns with the plant closing, including the harm it would cause to the economies of the Navajo and Hopi tribes, which suffer from "world-class poverty."

"I don't think we can be flippant and careless in making these decisions without understanding the impact these decisions will have," Forese said.

Environmental groups including the Sierra Club have fought to close the plant and others on or near the reservations in the region. Several environmental groups contend any economic harm to the communities could be made up for by developing renewable power sources such as solar and wind.

No environmental groups were invited to discuss those issues at the commission forum.

Commissioner Doug Little said he was concerned with relying more on natural gas because Arizona's entire gas supply comes from out of state and there is no storage here, meaning pipeline disruptions can cut off the power supply.

"When I talk about fuel security, one of the things I've talked about a lot is seeing the amount of coal you can pile up at the generation facility," Little said. "That is a warm, secure feeling for me. There is 30 days of fuel on site."