NTEC details reasons for stalled negotiations in purchase of power plant
FLAGSTAFF, Ariz. — As Navajo Generating Station (NGS) owners move the plant toward decommissioning, Navajo Transitional Energy Company (NTEC) detailed its view of why negotiations stalled in an effort to figure out a way forward.
Salt River Project (SRP), Arizona Public Service Co., Tucson Electric Power Co. and NV Energy own NGS.
The plant’s owners decided in February 2017 to close the plant because they can buy cheaper power elsewhere and despite a "Yes to NGS" campaign, headed by local mine workers who work for Peabody Energy, the sole mine that supplies coal to NGS, there has not been a plan that counters that prevailing trend in energy production.
On Feb. 28 this year,, it was announced by Navajo Generating Station owners that they would move forward with decommissioning the power plant in December 2019, despite NTEC’s interest in purchasing it.
“While the owners have been willing to explore avenues for NTEC to assume ownership of NGS, NTEC is not able to provide the required assurances to protect the plant’s owners, their customers and shareholders in the event of a sale,” the press release said.
NTEC said March 4 that negotiations stalled because of SRP’s insistence on a direct and unlimited guarantee from the Navajo Nation itself for any and all of the obligations and liabilities NTEC would assume under the acquisition.
“NTEC has made repeated attempts to offer alternate and commercially reasonable assurances to SRP, including a significant bond amount,” NTEC said. “NTEC voiced opposition to SRP’s demands and has publicly stated the Nation should not accept the demand for the unlimited guarantee and that the tribe created NTEC to protect the tribe’s sovereignty.”
In the March 4 meeting, which lasted five hours, NTEC’s board answered questions from 18 council delegates while members of NTEC’s Management committee presented information to delegates.
NTEC’s corporate status and purpose
According to Tim McLaughlin, NTEC board chair, NTEC is a for-profit entity wholly owned by the Navajo Nation. It owns the Navajo Mine and owns a 7 percent stake in the Four Corners Power Plant, which it purchased last July from Arizona Public Service.
“NTEC was created under Navajo law as a separate legal entity and was formed to manage and develop the Navajo Nation energy assets,” McLaughlin said, adding that the 22nd Navajo Nation Council gave NTEC authorization to pursue energy acquisitions.
“Most importantly, the Navajo Nation wanted an entity that could assist in the tribe taking back control of its natural resources,” he said.
McLaughlin said the proposed acquisition of NGS and Kayenta Mine is precisely the type of opportunity NTEC was created to pursue and he reported to the council that NTEC had concluded that such an acquisition would be in the best interest of both the Navajo Nation and NTEC.
During the March 2 meeting between NTEC and the council, a number of participants voiced their concern that SRP, as a regulated monopoly in the desert Southwest power grid, was intentionally trying to block any deal to prevent the entry of a significant competitor in the market.
Scott Harelson, spokesman for SRP, said NGS owners are focused on making decisions in the best interest of their customers.
“In this case, the owners are not going to make a decision that adds costs or risks that their customers might someday have to bear,” Harelson said.
He added that there are many independent energy providers across the Southwest, many of which have purchase power agreements with the current owners.
“Additional generation in our region isn’t competition — it’s potentially economic product for our customers,” Harelson said. “In fact, SRP has stated that it would purchase energy from any future operator of NGS if the cost of energy there was economical.”
Other people in the meeting between NTEC and the Navajo Nation Council voiced concern that SRP was protecting the 50,000-acre feet water currently assigned to the NGS plant and that the utility would prefer to return the water rights to the state of Arizona rather than the Navajo Nation.
However, Harelson said the water used at NGS was appropriated by the state of Arizona for use at NGS for the purpose of generating electricity.
“When the plant closes, the water right automatically remains with the state,” Harelson said. “The state will make any decision on how that water might be appropriated in the future, not the NGS owners.”
A money losing enterprise?
The Institute of Energy Economics and Financial Analysis (IEEFA) published a report Feb. 22 that says NTEC’s intention to buy NGS would most likely translate into a money losing enterprise.
The IEEFA conducts research and analyses on financial and economic issues related to energy and the environment and its mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.
The IEEFA report is titled “NTEC’s Plant/Mine Acquisition Plan Puts Navajo Nation at Serious Financial Risk (http://ieefa.org/wp-content/uploads/2019/02/NTECs-Plant_Mine-Acquisition-Plan_February-2019.pdf).
“The current owners of NGS, who have decades of experience in operating large coal-fired generators and profitably selling large amounts of electricity into the power markets, have concluded that it will be unprofitable to run NGS after 2019,” said David Schlissel, IEEFA’s director of resource planning analysis and lead author of the report in a press release. “There is no reason to believe that NTEC can succeed where the current owners have concluded that they cannot.”
NTEC presented an overview of its proposed operating model to the Arizona House of Representatives’ Committee on Federal Relations Jan. 30.
“NTEC will not replicate the current operating model of NGS, which is to be burdened by an independent fuel source (Kayenta) operating as a separate profit center,” NTEC said in a press release. “The simple but key distinction is that NTEC will acquire both NGS and Kayenta and operate them as a single, vertically integrated business.”
Differing views of moving forward
NTEC said at the end of the meeting the council proposed to have emergency legislation to address several important issues: to support NTEC’s acquisition of NGS, to inform SRP that the Nation would not agree to the demand for an unlimited guarantee from the Nation and to inform the Department of the Interior that the Nation wishes to continue acquiring NGS and Kayenta Mine.
Clark Mosely, NTEC CEO, said they consistently reminded the council the acquisition is important to the Navajo people and that in addition to the break-up of families because workers would need to leave the Nation to look for jobs, the closure would have a major economic impact to the Nation.
“Estimates over another 10-year period of operation for NGS will yield an estimated economic impact of $2.6 billion to northern Arizona, the Navajo Nation and the Hopi Tribe,” Moseley said.
Plant owners said they will fulfill their obligations to the Nation and its employees as decommissioning progresses.