April 10, 2017

More than Just a Coal Plant

Dan Byers

An important debate is taking place in Arizona over the future of one of the country’s largest coal plants, the Navajo Generating Station (NGS). In February, a group of the plant’s owners voted to slate the 2.2 gigawatt facility for closure in 2019, citing competition from low-cost natural gas.

This has prompted a stream of “Coal plants keep closing on Trump’s watch” stories that feed into the narrative that the President’s end to the War on Coal is a futile gesture doomed to be overwhelmed by market forces. While not without basis, this narrative misses the mark, as we’ve detailed this before, but it’s particularly flawed when it comes to the complex case of NGS.

This is because NGS isn’t just any coal plant. It is a truly unique partnership with a long and storied history. The project was conceived in the 1960s to deliver affordable electricity to growing populations in Arizona, Nevada, and southern California, while also providing a power source to pump water from the Colorado River to cities such as Phoenix and Tucson. In response to these dual needs, Congress passed the Colorado River Basin Project Act, greenlighting the facility and ensuring reliable source of water for the people of Arizona. As part of the unique arrangement, the Department of Interior’s Bureau of Reclamation took a 24% ownership stake in NGS.

However, what really sets NGS apart is not the electricity and water that it delivers, but rather the people that help deliver it. The plant purchases coal from a mine straddling territory of the Navajo and Hopi Indian tribes that is transported 100 miles by electric railroad to the power plant in the northwest corner of Navajo nation.

Together, the mine and the plant are a critical economic engine for both tribes. According to E&E News:

On reservations where unemployment estimates reach as high as 40 percent, plants and mines contribute more than $150 million annually in wages and tax revenues, according to federal figures. Roughly 90 percent of Navajo Generating Station's nearly 500 employees are Navajo. Almost all of the roughly 325 people who work at Kayenta are members of the Hopi and Navajo tribes.

Moreover, the plant and mine anchor the tax base for both tribes, providing approximately 22% of the Navajo’s annual general budget, and a whopping 85% of the Hopis’ general fund. The facilities are also a source of pride for tribal members. NGS employee Franklin Martin says “Navajo look at it and praise it. The people that work there enjoy it, being proud of working there and trying to make it better.”

It should go without saying that any decision to close the plant should fully consider and work to mitigate the impacts on affected employees and the tribes, particularly given the lack of alternative opportunities and already impoverished state of the region. To its credit, the Trump Administration’s Department of Interior is sympathetic, and even declared its opposition to the closure decision in February:

“Department of the Interior’s preferred path is to explore ways in which the plant could operate economically post-2019,” said David Palumbo, Deputy Commissioner – Operations for the Bureau of Reclamation. “We recognize that NGS is an economic driver throughout the state of Arizona, both for local economic activity and Native American employment near the facility as well as for users of CAP water, including the tribes that rely on that water. Before discussing the possibility of a permanent shutdown, we would like to see if we can find a path forward that meets the needs of multiple NGS stakeholders.”

To this end, baseline economic forecasting is one path forward that warrants a second look. Last week, an analysis released by Navigant consulting on behalf of Peabody Energy (the mine’s owner) questions National Renewable Energy Laboratory (NREL) natural gas price projections that weighed heavily in the decision to announce the closure of NGS. Navigant’s report found that the NYMEX gas price forecasts used by NREL were significantly lower than mainstream projections from other market analysis (see graphic below, which was presented to the Arizona Corporation Commission on April 6th). Navigant argues that, using these more mainstream price projections would change the business case and make Peabody’s fixed-price proposal extremely competitive with gas well into the future.

The Navigant study also calls attention to some eye-popping statistics that illustrate the importance of a diversity of affordable fuel options. It notes, for instance, that all natural gas used by Arizona is imported, with 70% of it coming into the state through a single pipeline. This dependence when combined with the lack of underground storage capacity makes transport-related supply disruptions, such as the one triggering the 2000-2001 California energy crisis, a significant concern.

So where do things go from here? If plant supporters are unable to agree on a lease extension for the plant by this summer, NGS must begin decommissioning to meet the current 2019 lease expiration date. Stakeholders on all sides continue to talk and evaluate options, and renewed federal support by the Department of Interior provides an opportunity for a second look at the plant, its economics, and its importance to the Hopi and Navajo Nations. Whatever is ultimately decided, it’s clear that NGS is far more than just a coal plant.