Potential Buyer of Navajo Plant Seeks ‘Glidepath’ to Alternatives

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By Stephen Lee

The company interested in buying one of the nation’s biggest coal-fired power plants said it is serious about its purchase bid, but also said fossil fuels aren’t a financial winner over the long haul.

Until then, New York-based Avenue Capital Corp. thinks it can squeeze some value out of the 2,250-megawatt Navajo Generating Station in Arizona, currently slated for closure at the end of 2019.

“Extending the life of NGS beyond 2019 can provide a strategic glidepath to alternative energy resources, to a time when intermittent renewable resources can be economically stabilized by energy storage, while providing reliable power generation and economic value in the interim,” Craig Hart, a portfolio manager at Avenue Capital, told Bloomberg Environment.

Keeping the plant running would also be a boon to the Navajo and Hopi tribes, whose economies rely heavily on Navajo Generating Station and the adjacent Kayenta Mine, owned by Peabody Energy, Hart said.

A source familiar with Avenue Capital told Bloomberg Environment that “the firm believes the plant is in fundamentally sound condition.”

The source—who spoke on condition of anonymity in order to speak candidly—also said Avenue “is considering a different operating profile that would better match the needs of the current market,” raising the possibility that the company wouldn’t run the power plant as an all-the-time baseload generator.

Running Out of Time

Time is running short for a new owner to take over the plant, according to its current operators. In late April, Salt River Project, which holds 43 percent of the generating station, told the Interior Department that “any offer to buy the plant beyond mid-May of this year will face significant challenges.”

The problem is one of timing, according to Scott Harelson, an SRP spokesman.

“If a party was truly interested in purchasing the plant, they would need to accomplish a number of significant steps to close a deal, including negotiating a purchase agreement with the current owners, a fuel contract with the coal provider, and a new lease with the Navajo Nation,” Harelson told Bloomberg Environment.

The new buyer would also have to complete an environmental assessment under the National Environmental Policy Act, according to Harelson.

“Our experience with these steps informs us that it will likely be very difficult to complete all of these steps by the time the current owners are no longer allowed to burn coal at NGS, which is Dec. 22, 2019,” Harelson said. “At that time, the plant will shut down and the employees will be, for the most part, gone. The owners have informed the Department of the Interior and other stakeholders of this circumstance because the likelihood of at least a temporary shutdown can impact the economics of a potential purchase.”

In the meantime, the plant has stopped doing the type of maintenance that would be necessary for long-term operations, such as major overhauls, Harelson said.

“A potential new owner could request that those activities be resumed, but would be required to reimburse the current owners for those actions,” he said.

Critics Question Profitability

But the soft mid-May deadline has come and gone, and Avenue Capital and its subsidiary Middle River Power, a private equity company from Deerfield, Ill., are still in talks to buy the plant.

They’ll likely benefit from some help from the Trump administration, which sees the plant as a symbol of the sagging coal industry. Last June, Interior Secretary Ryan Zinke said that “one of Interior’s top priorities has been to roll up our sleeves with diverse stakeholders in search of an economic path forward to extend NGS and Kayenta Mine operations after 2019.”

Some observers doubt that the plant will ever turn a profit, especially since one of the generating station’s biggest customers—a canal system that provides water to most of Arizona, known as the Central Arizona Project—has said it doesn’t want to keep buying power from the plant after 2019.

Without those kinds of commitments nailed down, any new owner of the plant won’t have revenue certainty, said David Schlissel, a director at the Institute for Energy Economics and Financial Analysis, a sustainable-energy research group in Cleveland.

“So far there is no evidence of any such revenue certainty after 2019, or that anyone wants to continue to buy the power from the plant,” Schlissel told Bloomberg Environment.

“Unfortunately, certain players refuse to acknowledge what the market already shows, and the public is having to bear that burden,” Arizona state Rep. Eric Descheenie (D) told Bloomberg Environment.

Congressional Republicans are also considering joining the fray. Earlier this month, Rep. Paul Gosar (R-Ariz.) circulated a discussion draft of legislation that would force the Central Arizona Project to keep buying Navajo Generating Station power until the plant’s $1.1 billion debt is paid off. That’s expected to take decades.

The bill hasn’t been introduced, and Melissa Brown, a Gosar spokeswoman, told Bloomberg Environment there are “no plans or updates at this time.”

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