The Trump administration has until December to save the largest coal-fired power plant in the West, but the prospects for the plant burning coal after 2019 are questionable.
The deliberations over the Navajo Generating Station in Arizona are beginning to heat up after months of confidential, behind-the-scenes negotiations to secure new owners. The talks will continue into next year even after Interior Secretary Ryan Zinke signs off on a key environmental determination for the plant and approves a lease extension by Dec. 1.
Zinke ramped up efforts to save the plant after low natural gas prices prompted the owners to decide to close the plant by the end of the year. A temporary lease agreement was forged to keep the plant running until the end of 2019 or until a longer-term solution can be created.
Resuscitating the plant could be the first test of President Trump's resolve to restore demand for coal in the electricity sector, especially since the the government is a majority stakeholder in the plant it is seeking to save. The Interior Department owns a 24 percent stake in the power plant.
"We're looking at it more from an overall preventing the premature closure of coal plants because we think they're important to grid resilience and reliability," said Michelle Bloodworth, the chief operating officer of the pro-coal industry group American Coalition for Clean Coal Electricity.
A member of her group, coal mining company Peabody, is heavily involved in the negotiations. Bloodworth's group will be working with the administration on developing new coal incentives proposed late last month by Energy Secretary Rick Perry that reinforce the value of coal plants such as the Navajo station, instead of scrapping them in favor of lower-cost natural gas plants.
"We were glad to see that the Department of Energy certainly recognizes the importance of grid resilience," Bloodworth said. "From that standpoint, we certainly think keeping that plant open is important to the overall national security of the grid."
The Energy Department proposal looks to provide market incentives for coal plants that can store 90 days worth of fuel on site to maintain grid reliability during supply disruptions.
The Federal Energy Regulatory Commission is on an accelerated path to put out a rule creating the incentives in roughly the same time frame that Zinke has to sign off on the Navajo plant's lease extension. The public comment period on the FERC's proposed rule ends Monday. But it is not clear if the FERC plan would help make the economics better for the Navajo station beyond helping underscore the administration's position that coal is necessary for a stable grid.
Arizona utility commissioner Andy Tobin used the FERC plan in a letter this month to the power plant's owners to emphasize its national security relevance and the need for the owners to maintain the plant as they prepare to leave in mid-December. The owners include the consortium Salt River Project, Interior's Bureau of Reclamation, and utilities Tucson Electric Power, Nevada Power, and Arizona Public Service Co. The Salt River Project managed Interior's stake in the power plant. Peabody operates the coal mine that feeds the plant.
Tobin fears the owners will renege on their obligations to maintain the plant in the waning days of ownership, he told the Washington Examiner. He warned them in the letter that backtracking on their maintenance obligations is prohibited under Arizona law.
Coal industry proponents point out that part-owner Tucson Electric Power is looking to buy nearby natural gas generators, which they say negates the reliability benefits of the coal plant. They point out that Arizona is largely an importer of natural gas and reliant on just one major shipping pipeline. Reliance on natural gas could cripple the state if a supply disruption occurred with no coal in the mix, they argue.
Proponents say the plant's continuing operation is necessary to support the Navajo and Hopi tribes that rely on it as a source of economic vitality, jobs and electricity, while the plant's owners say it would mean higher prices for customers.
"The owners made the difficult decision to end their participation in NGS because of the changing economics of the utility industry – primarily the cost of natural gas compared to coal generation," said Scott Harelson, spokesman for the Salt River Project.
"Our economic assessment remains the same today," he said. "The owners continue to believe that operating the plant beyond 2019 would not be beneficial for their customers."
Nevertheless, the administration at its "highest level" is paying close attention to the Arizona power plant's struggles, said Dan DuBray, a spokesman for the Interior Department.
It's a matter of supporting the people who rely on the plant for jobs, revenue, and power, while also supporting the president's pro-coal agenda, DuBray said.
"It is not lost on us that there is a great deal of attention on the coal aspect of this," he said. "It's producing energy in America and it's part of the America First energy strategy," but "it is a very significant source of economic activity for those tribes."
The plant is the largest coal-fired generator in the western half of the country and has its own dedicated mine to keep it running without disruption.
But if the plant closes, so does that mine.
Both facilities represent the only source of employment on the Hopi and Navajo reservations in that part of the state. So, if the plant and mine go, so do the jobs and communities that have grown up around them, say proponents.
The dilemma was one of the first that Interior Secretary Ryan Zinke faced that addressed the president's pro-coal agenda.
Eighty percent of the Hopi economy relies on the power plant and mine. The Interior Department has a strong sense of responsibility to the tribes, which is driving the push to save the plant, DuBray said.
The plant was slated to close at the end of this year, but the Navajo leadership, which leases the land that the plant operates on, agreed to extend it through Dec. 2019.
The new lease was approved in June, which means the plant will continue to generate electricity and employ workers for at least the next two years while the Interior Department figures out how to keep the plant running.
The new lease also delays the laborious decommissioning process of scuttling the plant.
Peabody Energy, the owner of the Kayenta Mine that feeds the power plant, is looking for a new consortium of owners, who would see a future in continuing to operate the coal-fired facility beyond 2019.
An official with Peabody said it found a potential owner, who will begin evaluating running the power plant. The news satisfies an Oct. 1 deadline with the plant owners to secure a buyer. But the negotiations on a final agreement won't be held until next year.
"Lazard believes the Navajo Generating Station is a critical resource in the region for power generation and resource diversity, and from a total regional economic impact perspective," said George Bilicic with the firm Lazard Fréres & Co. LLC, who is leading the transition process for Peabody. "Lazard took on this project because we believe there will be an optimal path forward that solves the needs of the many stakeholders involved, including the Navajo, Hopi and ratepayers in Arizona."
Saving the plant includes a number of moving parts. The Trump administration's role in the near term will be to finalize an environmental assessment of the new lease, which is legally required.
The new 35-year lease agreement that the agency seeks to approve before the end of the year, oddly enough, doesn't include burning coal during most of that period through 2054.
Instead, the new lease serves to stabilize the situation in the hope that new owners will be found and operations will continue.
"Whether [the station] will continue to operate after December 2019 is uncertain," the environmental assessment read.
Continuing to burn coal at the big plant with its nearly 800 feet tall smokestacks is still in question. But that will hopefully be worked out in the Jan. 2018 - Dec. 2019 timeframe, according to industry and government officials.
"We have been holding our breath to get it through 2019," DuBray said. "I think we are optimistic" that the new lease will be approved before Jan. 1 and the process to transition the plant proceeds, he said.
The lease's environmental assessment was released for public comment on Oct. 5. It included a draft "Finding of No Significant Impact" to the environment.
The environmental assessment shows no coal being burned at the plant through the 35-year period. But at the same time there is little question that the Interior Department wants nothing but coal to be burned at the plant.
The Bureau of Reclamation reviewed a number of alternatives, including converting it into a solar or wind farm, according to the assessment. But it rejected the alternatives, saying the site wouldn't be suitable for renewable energy development until it was decommissioned.
Zinke must sign off on the assessment and draft finding before the middle of December, when the Salt River owners leave. DuBray said the final environmental assessment will be complete by Dec. 1.
The Bureau of Reclamation wants to "extend the lease of the plant beyond 2019 and then begin the retirement after 2019," he said. "We are trying to provide some breathing room in this timeline."