Saving Navajo Generating Station is an impractical mission

In a hearing Thursday morning before the House Committee on Natural Resources, members of Congress will hear from various interests angling to keep the Navajo Generation Station in northwest Arizona alive.

It’s hard to imagine a more impractical mission.

{mosads}Granted, Navajo Generation Station is a vital source of jobs in the region, but it operates today on a broken business model that is not sustainable and simply cannot compete anymore in a fast-evolving electricity-production market. My organization, the Institute for Energy Economics and Financial Analysis released a research brief today that follows a full report we published last year questioning the ongoing viability of the plant.

Having revisited the issue in our update, we see Navajo Generating Station facing an outlook that is bleaker than ever

The plant’s owners — Arizona Public Service Company, the Salt River Project, Nevada Power and Tucson Electric — are closing the plant because the power it produces is considerably more expensive than power bought and sold on the open market. (The plant is managed through a complicated arrangement: the federal Bureau of Reclamation owns a portion, too, and the generation station sits on land owned by the Navajo Nation.)

Peabody Energy, meanwhile, has escalated a campaign to keep the plant open past 2019, when it is scheduled for shutdown. Our research specifically refutes assertions by Lazard, a firm hired by Peabody Energy, that the plant’s largest customer, Central Arizona Project (CAP), could save money if it were to buy power from the plant from 2020 to 2030. Peabody owns Kayenta Mine, which relies on Navajo Generating Station for business.

Board members and executives at CAP should make no mistake about the fact of the matter: Any new owner would be walking into a failing investment.

Navajo Generating Station s no longer much of a going concern— through no fault of the people who work there or the entities that have invested in it over the years. Our analysis shows if the plant were to be place on the kind of life-support deals being kicked around, it would still lose somewhere between $2.2 billion to $3.4 billion from 2020 to 2030.

Although Central Arizona Project, a water delivery system for central and southern Arizona, once accounted for 25 percent of the plant’s power purchases, in 2017 it conceded it could no longer afford to buy electricity from Navajo Generation Station. One marker of the problem: By CAP’s owns estimates, the agency could have saved $38.5 million in 2016 by buying power through the market instead.

Nonetheless, Peabody continues to press CAP to commit to a long-term purchase deal. “Yes to NGS” backers are saying this week that CAP would save $370 million by purchasing power through NGS through 2030.

Our calculations tell a different story: CAP would actually lose from $454 to $693 million, or an average of $41 to $63 million per year, from 2020 to 2030 if it were to continue to purchase power from NGS.

Even if a commitment beyond the 2019 deadline were secured from the Central Arizona Project, it would only require a fraction of the power the station produces.

Navajo Generation Station would be left with a glut of high-priced power for which it would have great difficulty finding a market.

David Schlissel is director of resource planning analysis at the Institute for Energy Economics and Financial Analysis.