Skip to main content

Economics of Navajo Plant Undercut by Steady, Low Natural Gas Prices

April 30, 2018

The Republic:

Two investment firms are considering a joint purchase of the Navajo Generating Station coal-fired power plant near Page, but time is running out to strike a deal.

The power plant is scheduled to close in December 2019, which also will prompt the closure of the Kayenta Mine about 80 miles away. Peabody Energy runs the Kayenta Mine and has hired Lazard, a financial advisory firm, to find a buyer for the power plant to keep the mine in business.

Emails between Lazard and the Central Arizona Project, which currently uses most of the power from the coal plant, were made public recently by a Cleveland research group called the Institute for Energy Economics and Financial Analysis. It’s unclear how the institute got the emails, but a CAP official confirmed their authenticity.

The emails show that Lazard set up an early April meeting with CAP to talk about the canal purchasing power from the coal plant if it were to be run by Avenue Capital Group and Middle River Power. Avenue Capital is based in New York and focuses on “distressed” investments. Middle River Power is based in Illinois and is an investment company that buys power plants Neither Avenue Capital nor Middle River Power could be reached for comment.

Salt River Project and the other electric companies that own the plant said they decided to close it because they can get cheaper power from natural-gas plants. SRP has said it will work with any potential buyer to turn the plant over and keep it running after that date, but warned this week that if a deal isn’t struck by mid-May, a sale probably couldn’t be completed by closing time.

David Schlissel, director of resource planning analysis for the Cleveland-based institute that released the emails, has written that the coal plant faces dim prospects despite the efforts to keep it running.

Schlissel said it makes no sense that Arizona regulators would try to save the plant. “Without causing a lot of pain, I don’t see how you make that plant economic,” Schlissel said. “And by pain, I mean legislators and regulators making customers buy above-market power.”

He said there’s little chance gas prices will rise enough even five years or more down the road to justify keeping the plant open. “Using the same argument, you could say, ‘Geez, we ought to have horse and buggies all around in case the price of gas goes up,'” he said.

He also cautioned that if the investment firms purchase the plant, it’s likely their business plan will be to make a quick profit and sell or close the facility. “My understanding is they do quick turnarounds and try to get out of plants,” he said. “Even if Navajo is purchased by these companies, there is no guarantee it is going to be around for five years. I would think it probably won’t be.”

More: Two Buyers Are Considering Purchase Of Navajo Coal Plant, But Time Is Running Out

Join our newsletter

Keep up to date with all the latest from IEEFA