Potential Navajo Station Operator—Less Capacity Equals More Profit

The possible new operator of the largest coal-fired power plant in the western U.S. told Arizona regulators this week the company would run the Navajo Generating Station (NGS) at less than half its installed generation capacity in order to maintain profitability. An official for Illinois-based Middle River Power (MRP) also said the plant would operate with fewer workers and would pursue a new lease and coal supply agreement.

The current owners of the 2,250-MW Navajo station in Page, Arizona, which include Arizona Public Service (APS), have said they plan to close the plant in 2019 unless it can be sold. Negotiations are continuing with New York-based Avenue Capital Group, a global investment firm that invests in distressed companies and the distressed debt market, as the potential new owner, with MRP—headquartered in the Chicago suburb of Deerfield—as the potential new operator. Russell Begaye, president of the Navajo Nation on whose land the plant sits, recently said a lease agreement with Avenue Capital and MRP could be discussed by tribal lawmakers at a meeting in October.

MRP’s senior vice president, Joseph Greco, on August 14 told the Arizona Corporation Commission, the group that regulates state utilities, that “We believe there is a solution to be made” regarding operating the plant at a profit, including running the facility at 44% of capacity. Greco said non-disclosure agreements meant he could offer few details, but he told officials his company would ensure the plant could provide reliable baseload power and remain economic.

MRP operates about 2,000 MW of power generation assets, including coal, natural gas, geothermal, and solar, in Virginia, West Virginia, California, and Maryland.

The Navajo station’s coal comes from the nearby Kayenta Mine, which is owned by the Navajo and Hopi tribes and operated by Peabody Energy. The plant and the mine mostly employ workers from each tribe. The Navajo Nation has said about 22% of its budget comes from coal and lease supply agreements with the NGS.

E&E News, meanwhile, on August 15 reported that Peabody has lobbied the federal government in an effort to keep the plant and mine operating. E&E News obtained emails and other documents through a Freedom of Information Act request to the U.S. Department of the Interior. The information shows how federal officials have acted with Peabody to keep the plant open, beginning a few years ago, as POWER previously reported.

Deb Scott, senior director of regulatory policy at Salt River Project, one of the plant’s owners along with APS, NV Energy, Tucson Electric Power, and the U.S. Bureau of Reclamation, this week said 140 of the plant’s 443 workers have left for other jobs, with their positions now held by contractors.

MPR has said it does not want to burn natural gas at the Navajo plant because the gas market is too volatile, and because it has a ready supply of coal from the nearby mine. MRP, which would need to find new buyers for the plant’s power, has discussed continuing the plant’s relationship with the Central Arizona Project (CAP), which has previously received about 75% of its electricity from the NGS to move water through its canal system in the state. CAP officials, though, have said it’s more cost-effective for them to buy power on the open market from other sources.

MRP has not said how long it would operate the plant if it emerges as the buyer. Tribal officials this week said the plant needs to operate at least another five to 10 years in order to allow time to find other sources of revenue for their budget. The plant was originally scheduled to operate until at least 2044 before the current owners voted to close it by year-end 2019.

Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).