Dive Brief:

• The Navajo Generation Station (NGS) on Thursday moved a step closer to closing when the Central Arizona Project (CAP), which supplies water from the Colorado River to central and southern Arizona, voted not to renew a power purchase agreement (PPA) with the 2,250 MW coal-fired plant in Page, Ariz.

• The PPA with CAP is one of the main revenue sources for the plant, which is facing closure by December 2019 unless a buyer steps in to take over the lease with the U.S. Bureau of Reclamation.

• Instead of buying Navajo plant power, CAP voted to sign a five-year PPA with the Salt River Project (SRP) and a 20-year PPA AZ Solar 1.

Dive Insight:

In the end, cheap power trumped other concerns for the Central Arizona Project.

"Power from the solar plant will cost about $25/MWh with no escalator," while power from SRP will cost about $36/MWh, and power from NGS will cost about $56/MWh, Ed Burgess, a director at Strategen Consulting, told Utility Dive.

CAP said its vote was largely based on diversifying its power purchase portfolio, but also said cost was a concern.

"CAP seeks a long-term, cost-effective, reliable and diverse power portfolio for the benefit of its water users. The two contracts on today's agenda would be a part of that diversified portfolio," Lisa Atkins, CAP's president, said in a statement.

"Native American tribes, municipal water providers and agricultural districts in central Arizona — more than five million people and 350,000 acres of irrigated land — depend on CAP for the reliable delivery of reasonably priced water," Atkins said. 

Burgess said analysis shows that a PPA with NGS would have raised water rates by $14 million.

NGS has been troubled for years by competition by generation from cheaper sources, such as gas-fired power and renewable resources. In February 2017, the four utility owners of NGS decided to close the plant at the end of 2019 due to cost pressures and the cost of maintaining the aging plant in the face of rising cost of complying with environmental regulations. Construction on the plant was completed in 1976.

News of the pending closure spurred several efforts to keep the plant alive. Navajo Nation officials sought federal subsidies to keep the plant and the Kayenta coal mine that feeds it running. The plant is the major employer for the Navajo Nation.

Peabody Energy, which runs the Kayenta mine, last spring hired investment bank Lazard to find a buyer for the plant.

A potential buyer emerged in the form of Middle River Power, which manages the power plant investments of Avenue Capital Group, but time for closing a deal is running short.

Native Americans rallied this week in Phoenix in an effort to buy more time, seeking a a 90-day delay in the CAP vote. But after studying the issue for years and delaying a vote several times, Atkins said CAP has run out of time. "We have come to the point where CAP must make decisions," she said in her statement before the vote.

Atkins hastened to add, "CAP did not have a vote on closing NGS. CAP does not own NGS. CAP is not required by law to buy NGS power. At the same time, CAP is not at war with coal."

CAP remains open to purchasing power from NGS post-2019, she said, which would assume that a buyer is found for the plant.

NGS has also attracted federal attention. Just this week, Interior Secretary Ryan Zinke reiterated his belief that the Department of the Interior has the authority to keep the plant running.

The Bureau of Reclamation, which is part of the Department of the Interior, owns about 25% of NGS. SRP owns 43%. Arizona Public Service, NV Energy, and Tucson Electric Power own the remaining shares.

Zinke's efforts mirror President Donald Trump's support for coal miners. Earlier this month, news leaked out that Secretary of Energy Rick Perry and the Trump administration are planning to bail out coal and nuclear plants at risk of closure under the authority of two seldom-used federal laws.