Reason #1: Economics
Because it’s a business doomed to fail fast.
That’s why its current owners – APS, SRP, Nevada Energy, and Tucson Electric, along with the federal Bureau of Reclamation – decided to close the plant by the end of the 2019. They have seen how uneconomical it is. And the economic outlook of both NGS and Kayenta have grown only bleaker with time:
- Selling power from NGS into western energy markets would not be profitable for NTEC or any future owner, and would in fact lead to staggering losses – between $2.2 billion and $3.4 billion over the next decade. And that’s not even taking into account things like capital expenditures, depreciation, or interest costs that any NGS owner would most certainly run into.
- Aging coal-burning power plants like NGS – which will turn 50 in five years – would also need costly upgrades. For example, APS has said that its 14 percent share of future upgrades at NGS would cost up to $200 million.
- Add on to that additional liabilities and costs that the Navajo Nation will take on as an owner of NGS and Kayenta mine, since it would automatically assume responsibility for cleanup of lands polluted from decades of coal operations, not to mention costs associated with restoring the N-Aquifer, which Peabody’s mining operations have depleted.
And let’s not forget that there’s the question of who exactly will buy power from NGS – you need a buyer for power that will be generated, or the entire purchase makes no sense. And there aren’t any. Here’s the situation:
- New York equity firm Avenue Capital and its subsidiary Middle River Power ended its bid to purchase NGS, after it determined there were no customers willing to buy large amounts of power from the plant to make costs pencil out. NTEC, should it move forward with purchasing NGS, would face the same bleak market.
- And Central Arizona Project (CAP) had historically been NGS’s biggest customer, but last year, in response to market changes making coal increasingly uneconomic, decided it would get no more than 20 percent of its power from any one source. CAP has already contracted for replacement power from solar at contract prices that are basically half of what it was paying for power from NGS.
- CAP has said it might consider buying power from NGS, but only at competitive market prices – which is not possible as noted above – and not under the kind of long-term contracts needed to make even financially sound plants economically viable. Even if CAP were to somehow continue to buy power from NGS, it would be under circumstances that would not make continued operation of NGS viable. NGS generated approximately 13.8 million megawatt-hours in 2017, which is four times more than the 2.8 million MWh per year CAP has historically bought from the coal plant – around 2.8 million megawatt hours per year. That means that NGS would still need additional buyers for the remaining 11 million MWh of power it has typically produced.
- At current market prices, such as what CAP recently paid for with new solar, it would make little financial sense to buy additional power from NGS. Even if it just acquired its current power consumption, CAP would lose between $312 million and $693 million over the next decade, as compared to purchasing power from other energy markets.
Bankrupting our future – just how many risks and toxic assets can the Navajo Nation take on?
The Navajo Nation already purchased a 7 percent ownership stake at another failing coal plant. Four Corners Power Plant in northwest New Mexico has become an increasingly unreliable and expensive source of power, because it faces the same plummeting market conditions that all coal plants face and will continue to grapple with in the coming years. NTEC will incur losses of more than $170 million between 2020 and 2027, just from its 7 percent share of ownership of the plant. These losses do not include the net cost of $100 million that NTEC paid to buy its share of the Four Corners plant. If we pile the toxic economic outlook of NGS and Kayenta on top of the enormous losses that Four Corners will cost the Navajo Nation, one has to wonder – why is NTEC pushing for a purchase of a coal plant and mine that are doomed to fail?
Reason #2: Jobs
Greater jobs and revenue opportunity if NGS closes in 2019
Jobs in a clean energy transition
Closing the Navajo Generating Station and Kayenta coal mine in 2019 presents far more job and revenue opportunities for the Navajo Nation than a desperate purchase of a sinking coal operation. The utilities operating on the Navajo Nation, and in the surrounding region, are beginning a steady and certain transition to clean energy now that technologies, like solar panels and battery storage, generate electricity at a lower price than continuing to burn coal at the Navajo Generating Station.
As the coal economy fades, the Navajo Nation has a serious opportunity to join the booming clean energy economy to create new, and lasting jobs, generate sustainable revenue, and protect Navajo land, water, and air.
Across the Navajo Nation, an abundance of sunshine soaks the land. This solar resource potential aligns perfectly with one of the fastest growing industries in the world: clean energy. Already, the Navajo have seen the construction of the Kayenta Solar Project, and Kayenta II, now under construction. These projects represent just a small fraction of the solar development opportunity available to the Navajo, and the first Kayenta Solar Project alone is estimated to have created $15.6 million in economic activity for the surrounding community.
For perspective, today, solar power accounts for less than 5 percent of the electricity consumed in the state of Arizona, but the solar industry already employs nearly twice as many people as coal in Arizona. On the Navajo Nation, the unemployment rate is nearly 50 percent, so a strong jobs engine like the solar industry opens up opportunity for a greater number of people to find work than coal ever could.
Jobs in cleanup and restoration of polluted sites
When NGS and the Kayenta mine close at the end of 2019, hundreds of skilled workers will be needed for decades to reclaim lands disturbed and contaminated by the coal operation, according to research from Institute of Energy Economics and Financial Analysis. Beyond reclamation, new jobs focused on water treatment and land maintenance could be necessary for at least a generation. Much of this work will require a skillset similar to that held by workers that remain at NGS and Kayenta. And among those who worked at NGS when the 2019 closure was announced, about one-third have already found new opportunities with the plant’s operator, Salt River Project.
All of these new jobs opportunities will help sustain additional economic activity across the Nation, including government services, housing, food services, and retail.
Revenue opportunity is greater with a 2019 NGS closure
To help jump-start new economic opportunities like clean energy, the Navajo Nation secured large payments from the companies that currently operate NGS. These payments include:
- a $110 million cash payment
- $39 million in guaranteed coal revenues
- $18 million in shared savings from building demolition
- a $275 million payment to the Navajo Division of Economic Development
- $80 million worth of transmission access and 10 years of utility maintenance
- and $38 thousand worth of water rights.
All of these payments and assets will be lost, however, if a new owner, like NTEC, buys the plant since it would make the negotiated deal with the current owners null and void. Giving all of this up in an NGS sale would be catastrophic for the future of the Navajo economy, especially since there is no certainty that there will be a market for NGS power after 2019, even under the far-fetched assumption that a new owner can manage to get the plant fully-staffed and back up to code.
The Navajo Nation is at a crossroads that could lead toward a new, diverse economy that creates lasting opportunity, or it could lead toward a potential bankrupt situation that depends on a coal industry that is tanking across the region. This is not a hard decision, but it does require forward-thinking Navajo leadership to stand up and join the growing clean energy economy and seize the economic opportunities available in the cleanup and restoration of our land.
Reason #3: Water
Because we must secure our water future!
We could, once again, gain access to water that has been denied to us for decades. Operating the Navajo Generating Station (NGS) and the Kayenta mine have major negative impacts on water supply and water quality. Furthermore, a purchase of NGS would risk guarantees to water rights for the Navajo Nation already secured in the agreement with the current owners of the coal plant.
Peabody Energy is working to push the Navajo Transitional Energy Company (NTEC) to purchase the Kayenta Mine and NGS. The continued operations of the plant and coal mine means a prolonged risk to our water supply, our most precious natural resource, and loss of critical water rights. It is not in the best interest of the Navajo Nation, our land or its people.
Huge Drain on Fresh Water Supply: Coal and mining operations depletes our fresh water supply at an alarming rate: The power plant consumes upwards of 34,000 acre-feet of water a year. That’s three times the amount of water used by a city of 50,000 people. The water comes from the Colorado River, our lifeblood. As Arizona continues speeding toward dangerous drought levels, reallocating water rights from NGS to the Navajo Nation would help alleviate local residential and agricultural water demand.
Water Rights Lost: Guaranteed rights to 1,500 acre-feet of water out of the 50,000 acre-feet annually allocated to the state of Arizona for the Upper Colorado River Basin already negotiated for the term of the current Replacement Lease would be now at risk. It would also put into question whether SRP would provide technical assistance to the Navajo Nation on the diversion of up to 950 acre-feet of water from Lake Powell for the benefit of the LeChee Chapter and other Navajo communities in the vicinity of NGS.
Aquifer Depletion: A sale of NGS and Kayenta mine to NTEC would not only mean that the Navajo Nation would take on responsibility for cleaning up polluted land, but water rights would continue to feed an outdated power source that contributes to water and environmental pollution. Ongoing dispersal of coal and ash would mean continued negative local groundwater impacts go unresolved, and Peabody might be potentially absolved or its responsibilities to restore the Navajo Aquifer that NGS and Kayenta depleted.
Water Demands on the Navajo Nation: The water currently used to operate NGS could be repurposed to meet the domestic, agricultural and other industrial water needs on the Navajo Nation. If NGS closes, the current water usage contract would end, freeing up water and giving the Nation the opportunity to apply for a new contract with the Bureau of Reclamation for delivery of water using existing facilities. The new contract would offer the flexibility to use the water for a variety of purposes. In addition, Salt River Project (SRP) has agreed to transfer the water pumping infrastructure to the Navajo Nation when the plant closes. This could have important benefits to expanding water access and providing broader distribution.
Once NGS closes, it could also open up additional opportunities to expand water access. Tribal water rights, or Federal Reserve rights, may represent an opportunity to secure additional rights with a much broader settlement with other states in the Colorado Basin and with Congressional approval.
Closing the plant is a sustainable solution that will help secure water supply for the future of the Nation. As utility providers lean toward transitioning to clean energy, retiring operations at NGS and giving the water back to the people is a natural solution that will help support and restore decades of pollution and help correct decades of injustice.
Reason #4: $400 million – Replacement Lease
Because NTEC’s purchase of NGS will kill cash payments and assets to the Navajo Nation valued at roughly $400 million – 20 times as much as the annual revenue generated by coal royalties from Kayenta Mine.
Navajo Generating Station is currently operating under an extension lease agreed to in July 2017 by the Navajo Nation and the five owners of the power plant after many months of extended negotiations.
The good-faith agreement does several things. For the owners of the plant, it provides a glide path to plan for decommissioning and a number of years to complete the work once the plant shuts down at the end of 2019. Otherwise, they would have faced an abrupt closure and messy, accelerated clean-up.
In exchange for the cushion, the utilities agreed to compensate the Navajo Nation with cash payments to cover lost lease and coal royalties, along with turning over a number of valuable assets. All together, those payments and assets are valued at more than $400 million.
And if NTEC succeeds in buying Navajo Generating Station, all of it will be void.
Canceled. Nixed. Nullified. Erased. Like none of it never existed. And the Navajo Nation will be left with nothing to show for its work, except a failing coal plant and the mine that feeds it.
Salt River Project has confirmed in writing that the benefits promised to the Navajo Nation in the replacement lease are contingent on the lease being fully executed – which means NGS must be fully retired by Dec. 23, 2019. Per SRP, the replacement lease dictates that “the Lease is void if a plant asset sale agreement is executed and delivered and the transaction closed by July 1, 2019. In such a situation, the terms of the Lease would not be implemented.”
In addition to $169 million in cash, items that would be forfeited by a sale include a number of highly valuable assets. Chief among them is access for 35 years to 500 MW of transmission capacity on power lines that cross the Navajo Nation. Not only are the current owners providing that access, they also have agreed to assume all operational and maintenance costs through 2029.
The estimated value of the transmission rights is $80 million, but the real value could be far higher to the Navajo Nation. These power lines connect the Navajo Nation to urban centers and power markets throughout the West. They provide a clear path to the future and to economic prosperity in a self-sustaining way the Navajo Nation has never had before, allowing the tribe to develop its vast solar potential and sell it to the world.
The assets also include a 78-mile rail line that is currently used to carry coal, and it includes water pumping infrastructure from Lake Powell that could be a starting point for the Navajo Nation to begin developing thousands of acre-feet of Upper Colorado River Basin water that are currently allocated to operating NGS.
Other items included in the list of assets that NGS owners will turn over to the Navajo Nation: an electrical switchyard; an air monitoring station; a warehouse; guaranteed rights to 1,500 acre-feet of water out of the 50,000 acre-feet annually allocated to the state of Arizona for the Upper Colorado River Basin; a new landfill cell; and SRP’s technical assistance in how to acquire remaining portions of that 50,000 acre-feet.
|What the Navajo Nation will lose if NTEC buys Navajo Generating Station|
|NGS Rental Agreement Cash Payment||35 years||$ 110,000,000|
|Coal Revenue Guarantee Payment||2 years||$ 39,000,000|
|Shared saving in building demolition||3 years||$ 18,000,000|
|Payment to the Navajo Division of Economic Development||One-time||$ 275,500|
|Various assets||One-time||$ 1,700,000|
|Coal Railroad||One-time||$ 120,000,000|
|Lake pumping system, switchyard and distribution line||One-time||$ 41,000,000|
|Warehouse, parking lot and land||One-time||$ 2,000,000|
|Transmission Access and 10 years of utility maintenance||35 years||$ 80,000,000|
|1,500 acre-feet of NGS water||35 years||$ 38,070|
|950 acre-feet of water for LeChee Chapter||Perpetuity||$ 24,111|
|New landfill cell||Perpetuity||NA|
If you’re keeping score, that grand total is 20 times as much as the annual revenue generated by coal royalties from Kayenta Mine. And in today’s energy markets, it’s hard to imagine that NTEC could keep the mine and power plant operating for any longer than a few years. The current owners are getting out of NGS because they’ve said they stand to lose more than $100 million a year continuing to operate it, and there’s every likelihood that NTEC will face the same losses.
So, the choice remains for the Navajo Nation Council – which ultimately will have the final say in what NTEC does with NGS and Kayenta Mine – throw away $400 million plus in cash and assets in the name of “sovereign ownership” of a power plant and coal mine that will likely lose the tribe hundreds of millions of more dollars. Or take advantage of a good-faith agreement that the tribe has already negotiated, and start using those very valuable assets to build a better, more prosperous future.
Reason #5: Peabody Using NTEC to Dump Toxic Assets
Because Peabody is scheming to shift its liabilities to the Navajo Nation – and might be trying to use NTEC to dump its toxic assets and walk away free from its responsibilities after decades of profiting off our land.
Peabody Energy must be held accountable to take care of its majority Navajo workforce to help with transition jobs, like SRP has started to do, to help restore the N-Aquifer their mining operations depleted, and cleanup the land polluted by decades of coal mining. Instead of taking responsibility after decades of using and profiting from Navajo resources, Peabody is likely lurking in the background, pushing for sale discussions involving Navajo Generating Station (NGS) and Kayenta Mine.
Peabody is trying to use NTEC to buy the Kayenta Mine and NGS not for the benefit of workers, or the Navajo Nation. Peabody has its own interests at heart, and they are pushing them at the expense of everyone else, including risking the livelihoods of Navajo workers and the future of the Nation.
- Poor Economics: NGS and the Kayenta Mine are losing money. That’s why the NGS owners are exiting and why another buyer, Avenue Capital’s subsidiary Middle River Power, declined a deal to buy NGS and the mine. Peabody has all the incentive to profit by unloading its money-losing coal mine onto the Navajo Nation. The Nation is projected to lose hundreds of millions of dollars if it buys NGS and the mine. It will lose revenue and rights guaranteed by the current owners.
- Dodging Responsibility: Peabody could leave the Navajo Nation to clean up its mess by absolving itself of responsibilities for mine reclamation and environmental restoration. A sale means the Nation will take on Peabody’s huge operating costs, liabilities, and responsibility for cleaning up polluted lands and restoration of the N-Aquifer. Peabody would also walk away from any responsibility to take care of workers when the mine closes.
- Playing Insider Politics: Peabody is using NTEC to push its bad deal because NTEC’s leadership is stacked with people who run in the same coal executive circles. The three main executive leadership positions at NTEC are all held by non-Navajo executives with no history on the Navajo Nation. They all came to NTEC from failing coal corporations, two of which have or are currently scheming to strip workers of retirement and health benefits.
- A History of Cheating: Given Peabody’s past history of cheating communities, Navajo Nation officials need to demand answers to protect workers. Peabody’s track record include making its workers fight tooth and nail for retiree health and pension, all meanwhile its top executives rake in fortunes in the face of bankruptcy. For example:
- In its Patriot Coal scheme, Peabody seeking to avoid its obligations to workers’ health care is well-known.
- In 2014, after Peabody stockholders had lost $16 billion in value, thousands of workers had been laid off and Peabody was headed for bankruptcy, meanwhile Peabody’s top five execs pulled down about $25 million.
There is a better way. Navajo leadership should focus on asking Peabody, which enriched themselves for decades on our land, tough questions about what exactly they are doing to support and financially help mine workers — many of whom live in our communities.
Nearby, the NGS operator, Salt River Project, is already assisting its workers with transition jobs. We need to demand the same of Peabody. We cannot allow Peabody to get away with dumping its toxic assets onto NTEC at the expense of the workers and the Navajo Nation’s entire economic future.
Time is short. NGS and the mine are closing this year. It is urgent that the Navajo Council and the President both prevent NTEC from taking on liabilities and risks on behalf of the Navajo Nation for future cleanup and mine decommissioning through the purchase of the mine from Peabody. Further, Peabody should be held accountable and must remain responsible for the full decommissioning, cleanup and reclamation of the power plant and the mine, and the restoration of the N-Aquifer.