Private Equity Company Ends Bid to Buy Navajo Generating Station

 

 

By Stephen Lee

September 21, 2018 - Private equity company Middle River Power LLC is ending its bid to buy Navajo Generating Station, the biggest coal-fired power station west of the Mississippi River.

The collapse of the deal deeply threatens the survival of the coal-fired power plant in Page, Ariz., which is slated to close at the end of 2019 unless a new buyer steps forward immediately.

Middle River was “terminating its efforts with regard to the overall work” on buying the plant, spokesman Todd Fogarty told Bloomberg Environment Sept. 20.

“Unfortunately, recent developments in California and 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 Navajo Generating Station to enable a workable operating paradigm,” the company said in an email to Bloomberg Environment.

As such, Middle River Power and global investment firm Avenue Capital Group “have concluded that the steps required to facilitate our ownership and operation of the plant are no longer possible within the required timeframe and therefore we are terminating our efforts,” the company said.

The company didn’t specify what it meant by “recent developments in California and Arizona.

California Gov. Jerry Brown (D) signed a bill Sept. 10 mandating that all the state’s electricity come from carbon-free sources by 2045. A renewable energy measure also will be on the Arizona ballot in November.

Peabody Energy Calls for Help

 

The plant has become a freighted political symbol, representing for some the Trump administration’s efforts to prop up the coal industry, and for others a dying business that can’t compete against cheaper natural gas and renewables.

Another loser is Peabody Energy Corp., which owns the nearby Kayenta Mine. The mine supplies all the plant’s coal and has no other customers, because no rail spur connects the mine to the outside world.

In a statement, Kemal Williamson, president of Peabody’s Americas business, called on “multiple stakeholder groups and, particularly, the U.S. government, to take all necessary steps to ensure ongoing operation of the Navajo Generating Station and Kayenta Mine beyond 2019.”

For more than a year, “an unprecedented group of stakeholders including the Navajo Nation, Hopi Tribe, union members, state and federal government officials, regulators, business groups, and others have come together to keep the Navajo Generating Station and Kayenta Mine open beyond 2019,” Williamson said.

“During that same time, the power plant has run at high-capacity utilization levels, demonstrating the importance of the plant in supplying reliable, low-cost baseload power,” he said.

Republicans in Congress and the White House have already tried to help the plant.

Rep. Paul Gosar (R-Ariz.) in May circulated a discussion draft of legislation that would force the Central Arizona Project for renewable water supplies to continue buying Navajo power until the plant’s $1.1 billion debt is paid off. That is expected to take decades. The bill was never introduced.

Last June, Interior Secretary Ryan Zinke said, “One of Interior’s top priorities has been to roll up our sleeves with diverse stakeholders in search of an economic path forward to extend NGS and Kayenta Mine operations after 2019.”

Difficult Way Forward

 

Middle River’s bid to buy Navajo Generating Station was always fraught with difficulty. The plant’s biggest customer, the Central Arizona Project, said it would stop buying Navajo power at the end of 2019 in favor of cheaper alternative sources.

Any new buyer also would have to complete a grueling, multiyear environmental assessment under the National Environmental Policy Act. The current environmental impact statement expires at the same time the lease does, in December 2019.

In a Sept. 20 letter to the Navajo Nation, which has strongly supported the mine’s continued operation because of the jobs it creates, Middle River conceded that “the go-forward timeline was a challenging one, and the Environmental Impact Statement process would likely govern the schedule.”

That process “would need to start as soon as possible in order to meet key milestones,” the company wrote in its letter. “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.”

Middle River’s Planned Path

 

During its bid to buy the plant, Middle River said it would be able to sell power to the Central Arizona Project for $26.84 per megawatt-hour through 2024.

That is a deep discount from the $56 per megawatt-hour estimated by Tucson Electric Power Co., which currently owns 7.5 percent of Navajo Generating Station. Similarly, Arizona Public Service Co., a 14 percent stakeholder, has pegged the cost of Navajo Generating Station power at $50.10.

But Middle River never provided granular details on how it planned to cut the price.

Last month, Joe Greco, the company’s senior vice president, said at a meeting of the Arizona Corporation Commission that Middle River could drop the plant’s power price by scaling back power generation, cutting a better deal on the price of coal with Peabody Energy, reducing staff, and using different maintenance vendors.

Some Navajo members celebrated the end of Middle River’s quest. 

 

“The Navajo Nation should now focus its efforts to transitioning its economy off of coal and into renewable energy,” Nicole Horseherder, executive director of the Navajo community group To Nizhoni Ani, told Bloomberg Environment. “They need to own and operate their own energy.”