Uncertainty of future power mix in California and Arizona spook commitments from potential electricity buyers

From Power Magazine

The companies negotiating to purchase the largest coal-fired power plant in the southwestern U.S. have ended their pursuit, which means the 2,250-MW Navajo Generating Station (NGS) near Page, Arizona, remains scheduled to close by year-end 2019.

Avenue Capital, a New York-based global investment firm focused on distressed assets, and Chicago-based Middle River Power on September 20 told the Navajo Nation in a letter that, “We have concluded, regrettably, that the steps required to facilitate our ownership and operation of NGS are no longer possible within the required timeframe.”

Russell Begaye, president of the Navajo Nation, earlier this year said a lease agreement for new ownership of the NGS needed to be finalized and presented to state lawmakers in October of this year. Begaye at the time said the parties involved acknowledged it was a short timeline.

No one willing to buy the power from the plant

The companies on Thursday said they were unable to find anyone willing to buy power from the plant. Uncertainty over the outcome of a November ballot measure supporting the expansion of renewable energy in Arizona also cast a shadow over the plant’s future.

Joe Greco, senior vice president for Middle River Power, and Craig Hart, portfolio manager for Avenue Capital, in a letter to the Navajo said the timeline to negotiate a lease agreement and begin an environmental review presented a challenge to the negotiations.

“We have always known that despite the promise of NGS, the go-forward timeline was a challenging one,” Greco and Hart wrote, according to the Navajo Times. The tribes publicly disclosed their negotiations with Avenue Capital and Middle River Power in July. “And the environmental impact statement [EIS] process would likely govern the schedule. As we have all discussed, that EIS process would need to start as soon as possible in order to meet milestones. However, we believe the schedule has become virtually unworkable due to the delays in discussions with potential counterparties regarding power purchase agreements due to recent events.”

Todd Fogarty, a spokesman for Middle River and Avenue Capital, told the Navajo Times: “Unfortunately, recent developments in California and [in] Arizona will create additional challenges for baseload power plants, and it has not been possible to secure from counterparties commitments to purchase a sufficient amount of power generated from [NGS] to enable a workable operating paradigm.”

“We have welcomed the opportunity to work closely with the Navajo Nation and Hopi Tribe, and other key stakeholders over the past several months as we have sought a path forward for NGS in which Middle River Power’s operation of the plant would allow it to continue to provide reliable, cost-competitive power beyond 2019, and remain an important contributor to these local communities and economies,” Fogarty said.

Middle River’s interest in NGS was first reported by Bloomberg in April, based on emails it obtained that showed a representative with the Lazard investment company reached out to a representative of the Central Arizona Project (CAP). The CAP has been a major buyer of electricity from the NGS; the NGS was built to move water through a series of canals, operated by the CAP, serving much of the state’s population. CAP officials earlier said they would buy less-costly power from other generators and no longer would contract with the NGS.

Lazard was retained by Peabody Energy, owner of the nearby Kayenta Mine that provides coal for the power plant, to find potential buyers for the plant and coal mine.

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