By Robert Walton
May 4, 2018 - An investment firm is conducting due diligence on the potential purchase of the coal-fired Navajo Generating Station (NGS) in Arizona. But with the plant slated to close at the end of 2019, it is unclear if there is sufficient time to close any deal.
Middle River Power, which manages the power plant investments of Avenue Capital Group, talked with the purchaser of the plant's output, Central Arizona Project (CAP), in an April meeting brokered by the financial advisory and asset management firm Lazard.
Facing competition from cheap gas-fired power, Arizona utility Salt River Project (SRP) and other owners plan to shutter the Navajo plant after its lease expires next year.
In a May 2 letter to the Central Arizona Water Conservation District, Middle River Power President Mark Kubow expressed optimism about the potential for moving ahead with a deal.
"As a result of the significant diligence conducted to date, including several visits to the plant, active engagement of the plant management team, and our experience and understanding of western markets, we are confident in our ability to create a lower-cost operating paradigm that repositions NGS in the current market environment," he wrote.
"Based on the positive results of our analysis, we are immediately advancing discussions with the existing non-federal owners, Tribal leadership and other stakeholders to discuss next steps for a functional transition to new ownership," his letter continued. Middle River Power expects the federal government to keep its current ownership stake in the plant.
But there are a myriad of factors and pressures affecting any potential deal.
The plant has been putting off maintenance, under the expectation it will close at the end of next year, which means a new owner would face a backlog of projects. And there are doubts, what with the cheap price of natural gas, that the plant could be competitive under any scenario. After all, that's why SRP wants out.
The utility has warned that if a deal isn't reached by mid May, it won't be done by the plant's planned closing date.
While more than a dozen parties signed confidentiality agreements to look at data from the plant, there is also a possibility some of those were more interested in an inside peek at operations than actually purchasing the facility, the Arizona Republic reports.
?In February of 2017, SRP and other plant owners voted to close the plant by the beginning of 2019. Wholesale power prices were cheaper, the owners said, and costs at the plant were expected to rise. Later that year, however, the plant won a reprieve after the Navajo Nation, which owns the land on which the plant sits, negotiated a new lease.
Several things would need to occur in order for the plant to continue operating past 2019, including finding a new buyer, environmental approvals, and new lease and coal contract negotiations.
The power plant is a major employer in the Navajo Nation, providing about a thousand jobs, and a large consumer of coal from miner Peabody Energy. Peabody wants to find a new owner, as the Navajo plant is the sole consumer of coal from its Kayenta mine.
Lazard was hired by Peabody to help find a new owner for the plant.
Several groups involved, including tribes and the mining company, have filed a lawsuit to keep the plant open. They have also asked for help from the federal government. The groups have argued in federal district court in Arizona that CAP is statutorily obligated to continue buying power from the Navajo plant.
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