LAW360 Analysis: Navajo Power Plant Poses Test For Trump’s Pro-Coal Stance
By Andrew Westney
Law360, New York (April 28, 2017, 3:33 PM EDT) — The looming closure of a power plant vital to the Navajo Nation and the Hopi Tribe gives President Donald Trump a chance to save jobs, help rural America and support the coal industry by backing the Navajo’s push to keep the facility online through 2029. Although extending the plant’s life might dovetail with the Trump administration’s priorities, experts say economic realities may make that a lost cause.
The Navajo Generating Station, a 2,250-megawatt plant located in the Navajo Nation near Page, Arizona, is slated to close at the end of 2019 after the utilities that own the facility said in February it is no longer economically viable. But since then, the U.S. Department of the Interior has met with the Navajo and Hopi tribes and other stakeholders to try to find a way to keep the plant afloat longer.
If the Trump administration really wants to go to bat for a coal project — despite the persistently low natural gas prices that led the utilities to pull the plug — the Navajo Generating Station may be the one, experts say.
“With the overall commitment to finding a place for coal in the energy mix and Interior Secretary [Ryan] Zinke’s stated commitment to tribes and ongoing support of tribal energy, this would seem to be a sweet spot of that set of issues for the new administration,” said Hogan Lovells LLP partner Scot Anderson.
But the station, known as NGS, faces the same core economic problems as other coal projects, and while the DOI searches for ways to stave off job losses and a plunge in revenues that could wreak havoc on the tribes, “it’s a question of what [the department] can control versus what they can’t control,” according to Powers Pyles Sutter & Verville PC partner Paul G. Moorehead.
The NGS, which went into operation in the mid-1970s, is co-owned by utilities Salt River Project, Arizona Public Service Co., NV Energy and Tucson Electric Power, as well as the DOI’s Bureau of Reclamation. The station serves electricity to customers in Arizona and Nevada, powered by coal from Peabody Energy Corp.’s nearby Kayenta mine, which has lease agreements with the Navajo and Hopi tribes.
The Navajo Nation pressed the DOI and Zinke in mid-April to keep the NGS open until 2029, saying that more than 40 percent of the tribe’s budget and its infrastructure are linked to revenues from the NGS and the Kayenta mine.
Hopi Tribal Chairman Herman G. Honanie told Law360 that his tribe is supporting the Navajo in making sure a lease is in place to continue until at least 2019, with the “greater goal” of keeping the plant going until 2029. The Hopi Tribe stands to lose up to 85 percent of its revenues if the NGS and Kayenta mine close, potentially making the tribe’s high unemployment worse, cutting revenue the tribe can share internally and exerting a “ripple effect” in the surrounding area, according to the chairman.
“It’s really going to be devastating,” Honanie said. “On top of our own specific picture for Hopi, the state and towns are going to suffer.”
Honanie added that based on Trump’s campaign pledges and Zinke’s support for coal, the tribe is “hoping to tap the administration to really take a strong stand to advocate on our behalf on the course of NGS.”
The DOI said in a statement following the recent talks that the department and its Bureau of Reclamation had hosted discussions ‘“with hopes of economically extending operations beyond 2019,” including the possibility of “new ownership to be identified in the future.” But the department added that “at the same time, we recognize this is a difficult task among the stakeholders and therefore are exploring ways to minimize negative impacts should the plant close.” The DOI plans to continue the talks in Arizona in May.
As the clock ticks on the project — with key decisions on decommissioning needing to be made soon if the project is to shut down at the end of 2019 — tribes and coal interests will be watching closely to see how the Trump administration handles the situation, attorneys say.
”What to do with these older coal generation stations is something that I think the entire country — and as a microcosm of that, the Navajo Nation — is dealing with,” said Maranda S. Compton, of counsel with Van Ness Feldman LLP. “In terms of synergies with the Trump administration’s platform, there are many there as the generating station and the mines on the Navajo reservation are key employers, and the Navajo reservation is also about as rural as you can get.”
But the administration is “still a wild card” for tribes, and the NGS quandary is “a context rife with significance for the administration’s positions both for energy development and tribal economies,” Compton said.
Several factors make the NGS an attractive one for the administration to champion, including the importance of the energy the plant provides to the region and the chance to save the Kayenta mine while saving the NGS, attorneys say.
Zinke’s support for tribal coal projects in particular seems to make the NGS a good fit, and the impact of the plant closure on the tribes means protecting it provides “social and political benefits beyond just the brute economics of having coal be in the energy mix,” Anderson noted.
But identifying the types of government actions that might allow the plant to stay open longer, such as subsidies or tax incentives, may not be enough to overcome the ready, cheap supply of natural gas that has already chopped down coal’s role in energy production. In addition, the Trump administration’s backing for gas development is effectively anti-coal because it encourages low gas prices, attorneys say.
“Whether the economics [of coal] can ultimately work for anyone, whether that be the Navajo Nation or someone else, is a real question,” Compton said.
The key to potentially giving the NGS life past 2019 may be how willing and able the Navajo Nation is to take on a larger role in the project, attorneys say.
The Navajo Nation have shown an entrepreneurial approach to coal mining before, having taken over the BHP Navajo Mine in New Mexico from a BHP Billiton unit in 2013. And the tribe has the size and infrastructure to manage such a project, attorneys say.
Navajo President Russell Begaye has said that if the NGS closes, the tribe wants to be able to pursue options for solar, wind or other renewable power sources — an initiative the federal government could back whether the plant shuts down in a couple of years or further in the future, attorneys say.
Honanie said the Hopi Tribe too will be looking for technical aid from the federal government to transition to alternative energy sources. The tribe will also be looking for the federal government to help the tribe explore other possible uses for its coal besides burning it at NGS. He said the coal it could be shipped to Mexico if rail service to the Hopi reservation is improved, he said.
“I think this is a time to really put the federal government to the test in terms of fulfilling their obligations to us as a trustee,” Honanie said.
If the government does prove able make regulatory changes or provide other assistance to help the NGS hang on, even for the short-term, “that would be seen as a real coup for the administration, short of solving coal’s problems,” Moorehead said.
Whatever the administration decides, tribes nationwide will be keeping an eye on the process to see how thoroughly the Navajo and Hopi are involved, particularly after many advocates felt tribes weren’t properly consulted over Trump energy actions like lifting the moratorium on federal coal leasing.
“How this gets managed, that’s where it will be a bellwether for how Native American interests will predict their future with this administration,” Anderson said.
–Editing by Christine Chun and Jill Coffey.