SRP says loss of Navajo Generating Station could cost Arizona $18 billion

February 22, 2012 — Arizona stands to lose about $18 billion in gross state product between 2017 and 2044 — including up to 3,400 jobs each year — unless agreements can be reached to keep the Navajo Generating Station in northern Arizona operating beyond 2019, according to a study prepared for Salt River Project and the Navajo Nation by the L. William Seidman Research Institute at the W.P. Carey School of Business at Arizona State University.

Located on the Navajo Nation, near Page, NGS is one of the largest and most important suppliers of electricity in the Southwest. Despite its economic importance, a number of challenges threaten the future viability of NGS.

The plant's lease and various rights of way with the Navajo Nation are set to expire around 2019 and the NGS owners are currently negotiating extensions. In addition, the plant's owners are also renegotiating the coal supply contract with Peabody Energy. Perhaps most significantly, potential additional and costly environmental rules from the Environmental Protection Agency could also force the plant to shut down prematurely.

According to the ASU report, Navajo Generating Station and Kayenta Mine: An Economic Impact Study, the closure of NGS — combined with the potential impact on nearby Kayenta Mine, the plant's coal supplier — could result in an annual loss of nearly 3,400 jobs and more than $602 million in adjusted state tax revenues for a period measured from 2017 to 2044.

The EPA is considering whether to require additional emission-control technology at NGS for the purpose of improving visibility in nearby national parks by reducing emissions of nitrogen oxides.

While recent improvements at NGS have reduced NOx emissions by more than 40 percent, the EPA is considering additional technology that could cost more than $1.1 billion and would be difficult for the owners of NGS to commit to without certainty that the plant will operate beyond the year 2019.

The ASU report examined the direct, indirect and induced economic impact of NGS and Kayenta Mine using the same REMI model employed by the state of Arizona to examine economic projections. The study concluded that NGS will provide more than $20 billion in economic contributions throughout the state for the period measured from 2011 to 2044.

Direct impacts from the plant and mine include employment, income payments, the purchase of goods and services from local businesses and tax payments to state and local governments. Indirect or induced impacts are less obvious but significant. For example, the income that an NGS employee receives and then spends in the local economy will in turn create revenues and/or income for a variety of different businesses.

According to the study, the principal beneficiaries of the economic impacts of NGS and Kayenta Mine are the host counties for each facility. Coconino County benefits from 39.4 percent of the 2017-2044 adjusted state tax revenues, equating to $237.6 million. Navajo County benefits from 34.9 percent of the 2017-2044 adjusted state tax revenues, equating to $210.3 million.

The REMI model used by this report was not able to estimate any impact exclusively for the Navajo Nation, although ASU's L William Seidman Research Institute will conduct a new study (Phase II) to determine an estimate of the economic impacts of NGS and Kayenta Mine exclusively for the Navajo Nation.

The current study did note, however, that throughout the period, NGS and Kayenta Mine will make a number of separate direct payments to the Navajo Nation, including lease payments, coal royalties and scholarships.

NGS employs about 540 people, more than 80 percent of whom are Native American. The Kayenta Mine has more than 400 employees, the majority of whom are also Native American.

To ensure future operations of NGS, the plant's lease and various rights of way with the Navajo Nation must be extended and the coal supply contract with Peabody Energy renegotiated prior to any additional costly emission controls from the EPA.

If EPA requires additional emission controls before the site lease is extended, Sullivan said the plant's viability would be threatened as the owners of NGS would be unlikely to make large capital investments without certainty that the plant could continue to run beyond 2019, and without certainty regarding the future costs of operating NGS because of the potentially higher lease and coals costs.

NGS is a coal-fired power plant that provides electricity to customers in Arizona, Nevada and California, and energy to pump water through the Central Arizona Project. The participants in NGS include the plant's operator, SRP; the U.S. Bureau of Reclamation; Arizona Public Service Co.; Los Angeles Department of Water and Power; Tucson Electric Power Co. and NV Energy.

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