NGS lease amendment nearly done, plant's future still uncertain

By Alistair Mountz
Special to the Times

PINON, Ariz., September 27, 2012

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(Special to the Times – Donovan Quintero)

The Navajo Generating Station near Page, Ariz. sets the backdrop for a hogan Saturday afternoon. The Navajo Nation and Salt River Project say negotiations for amendments to the current lease for the NGS are ongoing and likely to be completed within the coming months.

A ccording to Navajo Nation Attorney General Harrison Tsosie and Salt River Project senior director Jim Pratt negotiations for amendments to the current lease for the Navajo Generating Station are ongoing and likely to be completed within the coming months.

Although details of the negotiations remain confidential, both parties agree that the amended lease will increase revenue for the tribe and will likely last until 2044.

They also agree that despite friendly negotiations the future of NGS remains uncertain.

The Navajo Nation is represented in the negotiations by a team of division directors and policy advisors appointed by President Ben Shelly.

The list includes but is not limited to Sam Woods, policy advisor to Shelly; Fred White, deputy director of Natural Resources; and Stephen Etsitty, executive director of the Navajo Nation Environmental Protection Agency.

"We aren't negotiating a new lease," Tsosie said, "The lease isn't going to expire. A lot of people think mistakenly that we have an opportunity to strike a new deal, which isn't the case. The parties already have a right to make a request to go until 2044 utilizing the terms and conditions that are already spelled out in the current lease."

Tsosie continued, "The parties have come to the Navajo Nation and said they are willing to renegotiate certain terms and conditions that already exist. The most important ones that they are willing to renegotiate are amounts they pay to the Navajo Nation for the lease and additional payments in lieu of taxes. So that's something we are negotiating."

For the Navajo Nation, the main priority of the negotiations is simple: basic economic survival.

"I want people to understand," said Tsosie, "that the Navajo Nation receives an enormous amount of revenue from two facilities. That's the Four Corners power plant along with the BHP Navajo mine and the Navajo Generating Station and its associate mine through Peabody."

Tsosie said the Navajo Nation receives more than 32 percent of its annual revenues from those two sources, including leases, tax payments, royalties and other payments.

"So the one thing that every Navajo needs to understand is that the Navajo Nation is primarily a coal economy," he said. "It's our primary revenue source and provides some of the most high paying jobs."

"In the Navajo Nation's case they would like to see participants pay more money than what they receive today under the current lease," Pratt said. "Without breaking confidentiality, if these amendments move forward the Navajo Nation will increase revenue significantly and that's what they've been negotiating for. To bring more value to the tribe as a whole."

Regardless, of when the deal is done, or how much more money is negotiated for the tribe, the amended lease will have to pass the Navajo Nation council and get the signature of Shelly before taking effect.

Pratt recognizes the role NGS plays in the Navajo economy. Their main focus is keeping NGS open, and continuing to provide water and power at moderate prices to nearly a million Arizona residents.

That will be a difficult task in the years and months ahead, Tsosie and Pratt admited.

One problem is a forthcoming ruling on emissions from the U.S. Environmental Protection Agency concerning haze that restricts visibility around the Grand Canyon area.

"These facilities are 50 years old," Tsosie said, "and right now they have some environmental challenges, meaning some environmental rules are coming down from EPA."

There are two rulings still on horizon, according to Tsosie, which involve investement. Mercury rules may cost NGS $75 million to $155 million. The haze ruling may cost NGS more than $800 million.

"By the time all these are added up, infusion of over $1 billion to keep plants going might be necessary," he said.

Pratt agrees with Tsosie's estimation, and has no idea what type of controls EPA will require.

"The EPA is looking for more stringent controls all the time," he said adding that the law requiring new controls was intended to return visibility levels in the area to before the plant even existed by 2064.

Pratt points out that there is "flexibility" that allows EPA to require installation of less expensive equipment or lengthen the timeline of when the emissions controls would need to be installed.

That scenario is something the Navajo Nation is pulling out all the stops to avoid. In fact, there has been no bigger advocate for a moderate EPA ruling Shelly.

Shelly has stayed on message regarding less expensive emissions controls.

Another serious hurdle for the continued operation of the NGS plant is the National Environmental Protection Act. The NEPA process can take years. It eventually culminates with environmental impact studies of how much damage or strain NGS places on the surrounding environment, and is totally separate from the EPA emissions controls. The end result of the NEPA process is very unpredictable at this point, but could lead to even more investment.

It's the daunting NEPA process that concerns Pratt the most.

Because it involves a host of government agencies there is an incentive to "get the Navajo Nation on board from the very beginning," he said.

According to a 2006 California law called Assembly Bill 32: Global Warming Solutions Act utilities companies in California must reduce overall greenhouse gas emissions by divesting ownership in coal fired power plants.

It might seem like that wouldn't matter to a lonely plant on the edge of the Navajo Nation, but the third largest owner of NGS is the Los Angeles Department of Water and Power.

According to Pratt they're looking to sell off their 21.2 percent ownership stake by 2015.

Who would buy a stake that large in a 50 year old coal fired power plant with the possibility of having to fork over another few hundred million in emissions controls right after they sign the dotted line? That's the problem.

Both Tsosie and Pratt remain optimistic despite the challenges, but at the end of the day, it's all up in the air. But the best way to start that path toward certainty is to get the lease done.

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