Trump administration throws weight behind keeping Arizona coal plant open
Even while experts conclude the Navajo Generating Station, a 43-year-old coal plant in northern Arizona, is an economic albatross, the Trump administration is pushing to keep it running.
Tired of losing money on the facility, the plant’s owners voted in February to close the Navajo Generating Station when their 50-year lease with the Navajo Nation expires in 2019. The three-unit, 2,250-megawatt plant has been more expensive to run than natural-gas-burning plants.
“The decision was based on the economics of coal generation at NGS compared to other resources, primarily natural gas,” said Scott Harelson, spokesperson for Salt River Project, an Arizona electric utility that owns the largest share of the power plant. The original agreement between the plant owners and the Navajo Nation included an option to extend the lease until 2044.
In a recent analysis, the Department of Energy’s National Renewable Energy Laboratory examined price trends and found that “a turnaround for the power plant might be years away, especially if natural gas prices remain low.”
The Institute for Energy Economics and Financial Analysis (IEEFA), a research and consulting firm, conducted multiple studies of the Navajo Generating Station and found that huge subsidies will be required to keep the plant operating through 2019. “We put the price of keeping NGS open from mid-2017 through the end of 2019 at $414 million,” IEEFA wrote in a May report. Extending that “bailout” to keep the Navajo Generating Station operating from 2020 until 2030 would cost an additional $1 billion to $2 billion, IEEFA said.
Nevertheless, the Interior Department is working with Peabody Energy — a coal company with ties to President Donald Trump — to find another entity to step in and keep the plant operating. Peabody Energy supplies coal to the power plant, the seventh biggest source of carbon dioxide emissions in the country, from the nearby Kayenta mine on Navajo land. The plant is located on the Navajo Indian Reservation, just east of Glen Canyon Dam, near Arizona’s northern border.
The Trump administration “is committed to finding a post-2019 future for the Navajo Generating Station,” Bureau of Reclamation spokesperson Dan DuBray told ThinkProgress. The U.S. Department of the Interior’s Bureau of Reclamation, primarily a water management agency, oversees the government’s 24.3 percent ownership stake in the plant. It is the bureau’s only stake in a fossil fuel-powered electric power generating facility.
Aside from the federal government, the Navajo Generating station is owned by four electric utilities: Salt River Project at 42.9 percent, Arizona Public Service Co. at 14 percent, Nevada Energy at 11.3 percent, and Tucson Electric Power at 7.5 percent.
Mike Hummel, deputy general manager of the Salt River Project, told the Arizona Republic that without federal subsidies, a new owner of the plant would not be able to operate it cost-effectively. He noted that each utility owner of the Navajo Generating Station has owned and operated coal plants. “We are all very good at it, and we are all not able to make it work. That’s why the owners are choosing to exit,” Hummel told the newspaper.
Continued operation of the coal plant will not only come at a cost to taxpayers and ratepayers, it will also take a heavy toll on people who live in the region. The Clean Air Task Force estimates that pollution from the Navajo Generating Station contributes to 16 premature deaths, 25 heart attacks, 300 asthma attacks, and 15 asthma emergency room visits each year, with total annual health costs of more than $127 million.
On the other hand, the plant also provides significant economic benefits to the Navajo Nation. The lease agreements, royalties, and other payments tied to the plant and coal mine account for about 20 percent of the Navajo Nation’s annual revenue. “This money funds critical public services for our nation including schools, emergency services, infrastructure, and public parks,” Russell Begaye, president of the Navajo Nation, wrote in an op-ed earlier this year. “We already struggle to make ends meet and any reduction in our already strained operating budget would have disastrous consequences.”
The Navajo Nation is exploring ways to produce and market coal, and a solar project is being considered for the site if the power plant is shut down in 2019.
Earlier this month, Peabody Energy, one of the largest coal companies in the world, announced several “highly qualified potential investors” have expressed interest in “pursuing an ownership position in the Navajo Generating Station for operation beyond 2019.
The Navajo Nation itself is evaluating the proposals, looking at the potential buyers’ experience in running electric power plants, said Meghan Cox, a spokesperson for the nation. “It is our hope to keep these strong wages and jobs in the region. We’re doing everything we can to do so,” Cox said.
For the long term, the Navajo Nation also has hired energy experts to analyze the potential for adding renewable energy facilities at the site.
The Trump administration remains determined to take actions — even if they go against conservative economic thinking — that benefit the coal industry and workers. The Interior Department is focusing on the Navajo Generating Station as “one example of the many links to our economy and jobs that American mining and coal-generated energy provide,” the Bureau of Reclamation’s DuBray said in an interview with the Washington Times. In fact, supporters of the Navajo Generating Station told the newspaper that if the Trump administration is serious about helping the coal industry, it should consider making the federal government the full owner of the power plant if the utilities pull out.
“Since the first weeks of the Trump administration, 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,” Interior Secretary Ryan Zinke said in a June statement after the Navajo Nation Council ratified a new lease to provide for continued operations of the power plant. “Operating NGS and the Kayenta Mine through 2019 is the first step to meet this priority.”
In addition to meeting with the Interior Department, Peabody Energy has met with the Department of Energy to discuss the future of the Navajo Generating Station. DOE officials tasked with preparing an electric grid study requested by Energy Secretary Rick Perry held several meetings related to the power plant, including two-and-a-half-hour meeting on April 13 with Peabody, according to a meeting schedule obtained by ThinkProgress. According to the meeting schedule, DOE also met with Salt River Project officials, but the department did not meet with leaders from the Navajo Nation about the grid study.
DOE official Travis Fisher, who oversaw the department’s grid study, had hoped to include a case study of the Navajo Generating Station in the final report that would “get to the bottom of what’s really happening at Navajo.” In an email to his colleagues at the department, Fisher requested a volunteer to look into the big drivers — both market and political — that have placed the Navajo plant into the situation it’s in now.
“Where previous studies have focused on other things, I’d like this one to focus on the principles highlighted in the Secretary’s memo… reliability, resiliency, affordability, and fuel assurance,” Fisher wrote to his colleagues. A case study on the Navajo Generating Station was not included in the final version of the grid study, which ultimately found that economic factors, not a “war on coal,” were responsible for coal plants’ closings.
Unrelated to the DOE grid study, leaders of the Navajo Nation did meet with the Interior Department earlier this year to discuss the future of the power plant. Begaye urged the department to provide the Navajo Nation with guaranteed access to electric transmission lines at the site should the Navajo Generating Station close in 2019. The nation wants to be granted ownership of the plant’s infrastructure, including an estimated $241 million worth of production equipment, including transmission lines and a railroad that brings coal from the Kayenta mine. Salt River Project has indicated that it plans to tear down the plant before the lease term ends.
“We are exploring options to develop solar, wind and other renewables of which we will need access to the transmission lines on our land in order to export it,” Begaye said in a statement. “Additionally we would like to assume the rights to water and minerals on our land. Currently, we have no rights to minerals beneath our soil. As we seek economic independence, we would like rights to the uranium, coal, and other minerals beneath our soil.”
Jihan Gearon, executive director of the Black Mesa Water Coalition, emphasized that people in Arizona think the Navajos own the power plant because it’s called the Navajo Generating Station. But neither the Navajo Nation nor the Hopi Nation owns any stake in the plant. Black Mesa, the location of Peabody’s Kayenta coal mine, is a mountainous area of northern Arizona split between the Navajo and Hopi tribal reservations.
“In fact, we give so many things for free to the Navajo Generating Station,” Gearon said in a 2012 interview with Equal Voice News. “The electricity lines that run across the Navajo Nation, the train tracks that carry the coal — we’ve given them all of those right of ways for basically nothing.”
The Trump administration’s interest in the Navajo Generating Station has little to do with helping to raise Navajo Nation members out of poverty. The focus on the power plant is primarily about supporting the coal industry.
Aside from the Navajo Generating Station, the DOE is taking other steps to support to the coal sector. Last month, in a thinly veiled attempt to prevent plant closures under the pressure of competition from lower-cost gas-fired and renewable generation, Perry sent the Federal Energy Regulatory Commission a proposal to create a new system of payments that would be available only to coal and nuclear plants. Under Trump, the Environmental Protection Agency has also taken a number of steps to help coal companies — although coal communities are seeing less support.
The actions have been largely met with applause from the coal industry, which says there is an economic mandate to continue to use the fossil fuel.
“We believe NGS is an important engine for state and tribal economies. We’re encouraged by leadership from both the DOI and the DOE, which have been actively engaging in stakeholder discussions to keep the plant operating well into the future,” Peabody Energy spokesperson Beth Sutton said.
But given the economic realities of coal, continued operation of the plant seems like an expensive proposition. Peabody Energy is “trying to hoodwink its investors that they have a plan” for the Navajo Generating Station, according to Bruce Nilles, senior director of the Sierra Club’s Beyond Coal campaign. “I’ll believe it when I see it. Why would you buy a 40-year-old coal plant when the owners say they are losing millions a year?” Nilles said in an interview.
For their parts, the utility owners of the Navajo Generating Station “are willing to work with any group that might believe the plant can be operated economically — however the current ownership group will not participate in the plant beyond 2019,” SRP’s Harelson said.
Ted Cooke, general manager of the Central Arizona Project, said his system can find cheaper power elsewhere and is prepared for the generating station to close in 2019. “Even with a federal subsidy, it is an uphill battle,” Cooke told the Arizona Republic. Subsidizing the Navajo Generating Station enough to make it cost competitive with natural gas could cost upward of $100 million a year, he said.
The Navajo Generating Station has one of the most complicated histories of any power plant in the country. The Bureau of Reclamation recruited five utilities from California, Nevada, and Arizona to finance and co-own the plant. The first of the plant’s three units came online in 1974. Coal is mined about 85 miles to the east, on the ancestral homeland of Hopi and Navajo people, and transported to the generating station. If the plant shuts down in 2019, it will be the largest coal-fired power plant to be retired in the United States to date.
“Thousands of residents were exiled to make way for mining. Those who kept living nearby have been breathing coal dust for more than a generation,” writes Roger Clark, director of the Grand Canyon Trust’s Grand Canyon program.
The power plant provides electricity to operate the Central Arizona Project, a 336-mile water distribution system built to deliver more than 1.5 million acre-feet of Colorado River water annually from western Arizona to agricultural users, Native American tribes, and municipal water users in load centers in Arizona.
The trouble with closing the plant and the Peabody-owned Kayenta mine is it will lead to the loss of hundreds of jobs for Navajo and Hopi tribes and an end to royalty payments. Nearly 90 percent of the estimated 800 workers at the power station and coal mine are Native American.
The Hopi and Navajo tribes also receive a total of $51 million per year in revenue payments from the Kayenta mine. These payments will cease when the mine closes.
Various groups have been working on transition plans that would provide assistance to the Native American tribes. Under a plan proposed by IEEFA, $55 million in annual replacement revenues from targeted federal financial assistance would go to the Navajo Nation and Hopi Tribes for a minimum five-year period.
Arizona Corporation Commissioner Andy Tobin, who supports keeping the power plant open beyond 2019, wrote to the Interior Department in April recommending that the owners of the plant and the federal government share the costs associated with keeping the plant open through 2022. He proposed that the federal government pay a 50 percent share of these costs, with the other 50 percent paid by utility customers.
According to IEEFA, the Interior Department is fully capable of bearing the 50 percent share of a subsidy needed to keep the plant open until 2022, a share that would amount to $500 million from 2017. But IEEFA recommends using these resources instead to provide replacement revenue to tribal governments.
“Over a five-year period, at $55 million per year, this replacement revenue would total $275 million. It is possible that the final required total would be less than $275 million, since both tribes have ways to offset some of the lost revenue internally and both have the capacity to reduce their expenses,” IEEFA said.
Even if the Trump administration succeeds in keeping the Navajo Generating Station running past 2019, energy experts see little hope in the coal industry reversing its fortunes.
According to Energy Information Administration (EIA) projections, coal sales from Native territories dropped by 37 percent between 2003 and 2014. The EIA projects that by 2040, U.S. coal production will be half of what it was in 2008. The Navajo Generation Station also is a “fixer-upper,” with at least $100 million in upgrades needed, a turn-off for most potential corporate buyers, reporter Evelyn Nieves writes in the current issue of Sierra, the national magazine of the Sierra Club.
“The coal industry remains in a long-term decline. This is as true in Indian Country as it is in the United States as a whole,” Nieves writes.
For the Navajo Nation, the near term holds little promise, even if the Trump administration is able to keep the coal plant running for a few years beyond 2019. Today, more than four decades after the Navajo Generating Station came online, about 40 percent of Navajo Nation members don’t have access to running water in their homes.
Even more ironic is that on the same Native American land where a dirty power plant was built 43 years ago to power other parts of the Southwest and generate electricity to pump water from the Colorado River 300 miles to the south — allowing Phoenix to become a sprawling metropolis in the desert — 32 percent of the homes on the Navajo Nation reservation still don’t have electricity.
“We don’t even have the basic necessities that people across the United States and certainly down in southern Arizona have,” Gearon said. “Our whole economy is stagnant because of the coal industry. That has made us economically dependent on our own cultural destruction.”