Battle to Save a Dying Arizona Coal Plant Goes to Washington

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  • Navajo, Hopi ask president to save a linchpin of their economy
  • Utilities say cheap natural gas makes closing a no-brainer

The Navajo generating station.

Photographer: Ross D. Franklin/AP Photo

The view from the biggest coal plant in the U.S. West is spectacular: red rock buttes and wide desert vistas that change color with the movement of the sun. Set against this backdrop, the station’s towering smoke stacks seem to disrupt the serenity of the landscape, its three concrete pillars spewing a perpetual stream of heat and gas.

For the Navajo and Hopi tribes nearby, it’s a disruption they can live with.

For more than four decades, the Navajo generating station in the dusty Four Corners area of Arizona has been the region’s economic engine, generating jobs and vital government revenue along with 2,250 megawatts of power. Now its utility owners want to start the process of closing the plant as early as July. Their argument: Coal can’t compete with cheap natural gas.

To save the plant and about 800 jobs linked to it, the Navajo and Hopi are taking their case to a higher power: A U.S. president who’s vowed to revive the slumping coal industry. Tribal leaders met Wednesday with the Trump administration, the owners and other stakeholders in a final push to keep the generator running.

"It’s a linchpin of the Navajo and Hopi economy," said Dan Dubray, a spokesman for the U.S. Interior Department, which owns 24 percent of the plant and has a legal obligation to protect tribal assets and resources.

The battle to keep coal alive in an era of cheap natural gas is being fought across the nation, from West Virginia to Montana. It’s a debate in which the tribes have a significant stake. The Hopi’s 15,000 members derive 80 percent of their government revenue from coal mining royalties. For the Navajo, with 170,000 members, it’s 40 percent.

The generating station and the nearby Kayenta coal mine that feeds it each employs about 400 workers, and together they generate millions in economic activity. The mine, on both of the tribes’ lands, supplies coal to the plant -- its only customer -- via electric rail.

For a look at how coal is losing in Appalachia, click here

Built in the early 1970s, the generating station serves customers that range across the region and into Nevada.

Nevertheless, keeping the plant open will be a tough sell. At a time when the feeble economics of coal-fired power are hard to dispute, the plant’s four utility owners -- Salt River Project, Arizona Public Service Co., NV Energy Inc. and Tucson Electric Power Co.  -- are facing costly retrofits mandated by the U.S. Environmental Protection Administration, including air-quality controls that must be in place by 2030.

Salt River Project, the plant’s operator, argues that electricity produced at the Navajo station is more expensive than buying power on the spot market, with a turnaround years away. At the same time, the plant’s biggest customer, the Central Arizona Project, which pumps Colorado River water into the parched Phoenix metropolitan area, says it could have saved $38.5 million last year by buying energy in the wholesale market -- and would pocket even more in the coming years.

The relationship between President Donald Trump and the nation’s tribes is still evolving. By some measures, it got off to a rocky start earlier in the year when he backed the Dakota Access oil pipeline project without input from the Standing Rock Sioux tribe that long opposed it. Tribal officials said they were on their way to meet with the administration when the approval was announced.

Now the Navajo and Hopi are hoping Trump will make good on his vows to keep coal online, just as he kept his promises to advance the Dakota Access pipeline. At Wednesday’s meeting, Interior Secretary Ryan Zinke told the tribes he was hopeful a deal could be reached to prolong the life of the plant.

One way Trump could help is by loosening the environmental regulations affecting coal plants, said Navajo Nation spokeswoman Meghan Cox. "Decreased regulation on coal makes coal more viable," Cox said in an interview. "So more than anything we need to loosen restrictions on coal." 

Trump has already rescinded an Interior Department coal-pollution rule and taken steps to reverse the EPA’s Clean Power Plan, which sought to curb carbon emissions from the power sector. But cutting regulations can’t change coal’s unfavorable economics.

Peabody CEO Says Regulation Squeezed Out Coal

Source: Bloomberg

The Navajo Nation has also asked whether Trump can find a way to subsidize the fuel so it’s competitive with natural gas. Such a move would require legislation, a difficult prospect in today’s political climate.

The tribes are also exploring their options if the plant does close, including the development of renewable energy such as wind and solar. They’ve asked the Interior Department to guarantee access to transmission lines and consider granting the tribes mineral rights so they can unilaterally mine and sell their coal and uranium resources.

Dubray, in a telephone interview, said the U.S. Interior Department is “trying to turn over every rock, not only to ensure operations through the current lease term which ends in 2019, but we are also publicly committed to exploring any economic ways available to operate the plant post-2019."

The four utilities say they may be willing to keep the plant running until 2019 if they can hammer out a lease extension with the Navajo Nation that would allow two to three years of decommissioning activities. If they can’t reach an agreement by July 1, Salt River Project has said it will immediately begin decommissioning. 

The group gathering in Washington hopes a deal on the lease can be reached on Wednesday, so that regulators and tribal officials can focus on the next big hurdle: identifying possible new owners for the plant, as well as new customers. 

Only Customer

Peabody Energy Corp., which operates the Kayenta mine, would lose its sole customer if the plant is shuttered. As a result, it’s offered to close the gap by selling its coal at a discount. The company commissioned a study that showed its discounted fuel plan could put the plant on equal footing with natural gas through 2040. 

"Peabody has brought to the table a competitive fixed price fuel proposal," Kemal Williamson, Peabody’s president for the Americas, said in a statement following Wednesday’s meeting. "We’re encouraged."

Whether that proposal can attract buyers, however, remains an open question.

The Interior Department could also increase its share of the plant, or the Navajo Nation could take over as its operator. According to those planning to attend Wednesday’s meeting, all options are under discussion. The gathering is expected to be one of many to determine the plant’s fate.

UNS Energy Corp., which has a 7.5 percent stake in the plant through its Tucson Electric Power subsidiary, is committed to closing the plant by 2019, but favors buffering the blow for the sake of its employees.

“Knowing the effect it will have on those communities, we’re not stepping on the gas,” Chief Executive Officer David Hutchens said in an April 6 interview at Bloomberg headquarters in New York.

‘Beyond the Pale’

Andy Tobin, an Arizona utility regulator and former legislator, said that closing the station "is beyond the pale. I don’t know how this community could really ever recover from an economic hit like this." 

He and other utility regulators have spent the past month traversing the Four Corners area and northern Mexico trying to find new customers for the station’s power, he said, hoping this would make a sale more attractive. The results, though, are looking grim.

"We are on a fact-finding mission," he said. "We’re just scrambling to find needles in haystacks."

— With assistance by Jim Polson, Dave Merrill, and Tim Loh

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