In December 2016, Arizona Corporation Commissioner Andy Tobin asked Arizona Public Service (APS) why it was planning to invest so much money in new natural gas power plants. APS’ latest Integrated Resource Plan calls for 5,300 megawatts (MW) of new gas plants and only 300 MW of utility-scale solar and storage.
Tobin was right to ask APS about its plans to add so much gas and so little solar. But he and his colleagues on the ACC are dead wrong when they claim that the answer to fuel diversity in Arizona is to throw a life preserver to the struggling Navajo Generating Station (NGS), a coal plant that is headed for shutdown in 2019.
Although NGS has been operating since 1974, Peabody Energy, the largest coal company in the U.S. that emerged from Chapter 11 bankruptcy protection in April, wants to keep the plant running at least 20 more years. Tobin and other ACC commissioners, like Chairman Bob Forese, have made comments that are supportive of keeping the plant online, even though the utilities that own it are ready to call it quits.
NGS is owned by the U.S. Department of Interior’s Bureau of Reclamation (24.4%), Salt River Project (42%), APS (14%), NV Energy (11.3%) and Tucson Electric Power (7.5%). Most of the Bureau of Reclamation’s share of NGS is used to pump water across 337 miles of desert, nearly 3,000 feet uphill via the Central Arizona Project, a concrete canal that runs from the Colorado River to Tucson, Arizona.
The Los Angeles Department of Water and Power (LADWP) recently withdrew its 21.2% share of the plant, and NV Energy plans to do the same, leaving fewer owners to bear the ever-increasing costs to run one of the dirtiest coal plants in the Western U.S.
NGS coal comes from the Peabody-owned Kayenta coal mine, located on the Navajo Nation, 80 miles from the power plant. Over the past 40 years, NGS has pumped over 500 million tons of greenhouse gases (GHGs) into the atmosphere, ten times more than Arizona’s total 2015 electricity CO2 emissions of 50 million metric tons.
Salt River Project says that “under no circumstances” will it continue owning NGS after 2019. SRP bought LADWP’s share for $15 million; by extrapolation, that deal valued the plant at only $75 million.
Central Arizona Project General Manager: It Could Cost $100 Million Per Year to Subsidize Coal at NGS
According to Ted Cooke, general manager of the Central Arizona Project (CAP), subsidizing coal at NGS would likely cost $100 million per year, and even with massive subsidies purchased power might still be cheaper.
The National Renewable Energy Lab (NREL) has published a number of studies on the economics of NGS, corroborating CAP’s presentation that the total cost to generate power at NGS is $38/MWh, while power on the open market cost $32/MWh. Further, the cost of NGS power is expected to increase to $41/MWh after 2019, when new coal rates kick in, while pollution controls result in the cost of power escalating to $51/MWh in 2030.
Navigant NGS Study Includes “Proprietary” Assumptions
Peabody hired Navigant Consulting to analyze the economics of keeping NGS running, assuming an improvement because Peabody says it is willing to reduce its coal costs. Navigant reports a “savings” of $400 million over 20 years. Peabody’s press release on the study says it “utilized its [Navigant’s] proprietary base case market assumptions and price forecasts as the baseline for analyzing NGS,” and “transparency on fixed costs is limited.” Navigant helpfully adds that these predictions are “inherently uncertain” and “actual results may differ materially” from those in its study. In plain language, this means the study’s key assumptions are hidden, and that it could be completely wrong.
Some problems with Navigant’s NGS study are obvious and egregious: Navigant assumes an 80% capacity factor (how many hours per year a power plant produces electricity) for NGS, which is highly unlikely since the plant ran at 61% in 2016. Navigant also gives short shrift to solar, and never mentions that LADWP replaced its 21% share of NGS mostly with large-scale solar. As the Navigant study points out, all coal plants in the desert southwest have declining capacity factors, not just NGS.
While Tobin, Navigant and Peabody rightly point out the danger of Arizona increasing its reliance on natural gas, they are just plain wrong on running an old coal plant for 20 more years. The health damages alone from NGS far exceed its value as “cheap” electricity, and with solar deals in the sunny southwest coming in at 4 and 5 cents/kWh, why pour money into the West’s most notoriously dirty coal plant?
Peabody also hired the consulting firm Lazard to locate new owners, but it appears unlikely they will find a purchaser.
Peabody, the ACC, and the utilities are rightly concerned about the loss of jobs for tribal members who work at the mine and the power plant. The mine and the plant employ 900 workers, mostly Navajo. A January 2014 study by Synapse Energy Economics showed that one-third the replacement capacity of NGS (2,250 MW), or 900 MW of renewable energy, would provide just as many jobs as the mine and power plant. Direct and indirect employment from the development of clean energy would create nearly 1,000 jobs. Using the existing transmission and other infrastructure at NGS makes sense.
In the past five years, the value of Peabody coal has crashed 90-95%. Meanwhile, the cost of solar and wind have plummeted and will continue to fall. Xcel Energy is pushing wind and solar in Colorado, New Mexico, and Texas based on fuel savings and long-term price stability.
Peabody made many millions in profits ruining the air and water on the Navajo Nation. When Peabody initially filed for bankruptcy protection, it had $8 billion in debt, which was reduced to $2 billion. Peabody is leaving a legacy of toxic mines to clean up, and taxpayers are already on the hook for billions.
Throwing good money after bad on one of the West’s most polluting dinosaurs is a big step backward. A good chunk of NGS’ power is used to pump water uphill from the number one most endangered river in the U.S., the Lower Colorado. And as Commissioner Tobin said himself, if Arizona wants a bright future, water is key. The Navajo Nation gets only 7 inches of rain each year. Using precious water to keep a 40-year old coal plant running twenty more years is a bad idea.