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Economic Conditions, Not Environmental Regulation, to Shutter Arizona Coal Plant 25 Years Sooner Than Expected

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by Patrick J. Paul

In a demonstration that not all regulations solve the problems they were intended to, and a testament to the power of market conditions, owners of the controversial Navajo Generating Station (NGS) power plant near Lake Powell announced their intention to terminate their interest in the three unit, 2,500 megawatt facility following expiration of the land lease with the Navajo Nation in 2019.

In a February 13th press release, the utility owners voted to extend plant operations of the Page, Arizona facility through its December 2019 lease, thereby preserving for three years some employment stability and a continuity of revenues for the Navajo Nation and Hopi Tribe.

The four NGS owners include Salt River Project, Arizona Public Service Co., NV Energy and Tucson Electric Power. A recent industry study concluded that NGS-produced electricity is currently more expensive than electricity generated by burning natural gas and that a turnaround of this economic reality likely is years away, if ever.

Central Arizona Project (CAP), which has long utilized NGS-generated power to support its canal network that pumps water to millions of people in the Phoenix metropolitan area, supports the closure. Given the changes in the electric market, CAP understands that NGS power is now significantly more expensive than other energy alternatives and itself had been evaluating alternatives it expects would result in lower energy costs for its users.

The cost of NGS electricity is further anticipated to increase under the new lease agreement with the Navajo Nation and due to EPA-mandated nitrogen oxide controls. In anticipation that the coal plant’s days are few given simple economic realities, federal agencies such as the Department of Energy and EPA had already committed to providing the Navajo and Hopi tribes assistance in transitioning their economies beyond coal dependence.

The Navajo and Hopi tribes now must turn their attention to reaching a deal with utility owners to allow continued operation of the facility through 2019 along with plans for post-operation regulatory closure. Without such an agreement, operations could terminate later this year. The International Brotherhood of Electrical Workers, although disappointed in the plant closure, nevertheless supports such an agreement.

It is conceivable the plant could operate beyond 2019, but such a result likely would require an ownership change, a softening in federal regulation, and a strong reversal in market conditions – a triumvirate that seems unlikely at this time.

So, in the end, environmentalists will achieve their goal of plant closure, but not as a result of controversial and expensive regulations, but rather because of energy prices and simple economic fundamentals. The focus now should be on a transition for the impacted tribes and their people who depend on the plant’s operations for their own livelihood. Coupled with the almost certain closure of Peabody Energy’s Kayenta Coal Mine, whose primary (if not sole) customer was NGS, facility closure could result in the loss of more than 700 jobs in an area already deeply impacted by poverty and high unemployment.