Los Angeles does deals to get coal – eventually – out of its portfolio

The Los Angeles Department of Water and Power, which in a December 2012 integrated resource plan said that it wanted to get rid of its stake in the Navajo coal-fired plant, said March 19 it has made progress on that goal.

LADWP said that representatives of LADWP and the Salt River Project have reached sufficient progress on the principle terms to sell its stake in Navajo for the two utilities to move forward to negotiate a definitive agreement that would end LA’s use of coal-fired power from the plant by the end of 2015. If a final agreement can be reached and approved by each party’s governing bodies, this will end LA’s role in the Navajo Generating Station (NGS) more than four years earlier than mandated by California greenhouse gas reduction law.

Also, LADWP’s Board of Water and Power Commissioners approved a contract that will enable LADWP to completely transition out of coal power from the Intermountain Power Plant in Delta, Utah, by 2025 at the latest, with efforts to begin that transition no later than 2020. LADWP said in the IRP that plans were being worked on to switch the 1,800-MW Intermountain coal plant to burning natural gas, but this new plan is a bit different than that.

LADWP currently owns a 21% interest in the 2,250-MW NGS, receiving 477 MW of coal-fired power from the plant. The board on March 19 directed staff to develop the final transaction agreement, which is expected to be approved by both parties later this summer, with consideration by the Los Angeles City Council thereafter.

“We are very pleased that we have made progress with Salt River Project to enable moving forward with the negotiation of the final agreements that would enable LADWP to fully divest of coal power from Navajo by the end of 2015,” said Ronald Nichols, LADWP General Manager. “This will close a chapter on our reliance on coal-fired power in Los Angeles. Our efforts to create a clear path to ending our use of coal-fired power from the Intermountain Power Project is also a major achievement for a complex arrangement involving 30 Utah public power utilities and 6 California municipal utilities who receive power from that project. This allows us to focus on the new low-carbon future of Los Angeles.”  

Eliminating coal power from the IPP was more complex than negotiating the terms of sale of Navajo because LADWP does not own any part of IPP. LADWP is one of six Southern California municipal utilities that purchase coal power from the 1,800-MW plant under a long-term power purchase agreement that expires in 2027. IPP is owned by 23 municipal utilities in Utah and supplies power to 30 utilities in Utah and six utilities in Southern California, including LADWP. Under California law, SB 1368, electric utilities will not be allowed to import power into the state that exceeds a fossil fuel emissions cap after their current contracts expire. The emissions cap is set at the level of an efficient, combined cycle natural gas power plant.

Plan calls for brand-new gas-fired plant of up to 1,200 MW

The board’s March 19 action approves LADWP’s portion of the amendment to the long-term power sales agreement to stop taking coal power from IPP earlier than 2027 and build a smaller natural gas plant that complies with California emission standards. LADWP and other Southern California municipal utilities will continue to receive renewable energy from Southern Utah from the Milford Wind project, with that power delivered over the same transmission line that presently also delivers power from Intermountain. The contract provides for beginning LADWP’s transition out of coal power from IPP with the commencement of engineering, design and construction of the smaller natural gas-fired generating plant by 2020 and completely eliminating coal power from IPP no later than 2025. 

The smaller plant, estimated at between 600 MW and 1,200 MW in size, will allow LADWP and the other local municipal customers to develop more renewables and bring it to Southern California along existing transmission lines that now handle power from the 1,800-MW IPP facility.

“Working with IPP and its other customers, we have developed a win-win-win solution that is good for Southern California and good for Utah,” said Aram Benyamin, LADWP Senior Assistant General Manager–Power. “Siting and building a new power plant and the transmission lines to deliver replacement power to Los Angeles would have cost at least twice that of rebuilding at IPP. By using an existing power plant site and existing DC Southern Transmission System for delivery of power from the future project and transforming it we will save money, time, reduce emissions by over 2/3 that of the existing plant, be able to build more renewables and bring that power home to Los Angeles. That’s a homerun.”

The amendment is subject to approval by the Los Angeles City Council, will be considered by the other municipal purchasers and is currently being ratified by the 23 Utah owners.

U.S. Energy Information Administration data shows the Intermountain plant getting coal in 2012 from several Utah mines, including the SUFCO longwall operation of Arch Coal (NYSE: ACI), the Bear Canyon deep mine of Rhino Resource Partners LP (NYSE: RNO) and the new Coal Hollow surface mine of privately-held Alton Coal Development.

Work underway to save Navajo coal plant for the long term

In the meantime, the Navajo Nation and the owners of NGS have a tentative agreement for an amendment to the NGS site lease that could allow operation of the plant until 2044 and provide grants of rights of way and easements for the plant, railroad, transmission and water lines. The current site lease and the grants of rights of way for the plant, railroad, transmission and water lines will begin expiring in 2019, said plant operator and co-owner the Salt River Project (SRP) in a Feb. 16 statement. If approved by the Navajo Nation, the lease extension cannot be finalized until it is approved by the Secretary of the Interior. That is a process that requires reviews under several federal environmental programs that could take up to five years to complete and may be subject to legal action.

SRP, as operating agent of NGS, worked with a team from the Navajo Nation made up of individuals from several areas of its government to develop the agreement. The proposed lease agreement will provide increased revenues to the Navajo Nation in lease payments and in-lieu taxes annually through the year 2044.

NGS supplies power to customers in Arizona, Nevada and California and also supplies most of the energy used to pump water through the Central Arizona Project. NGS also provides significant benefit to the Navajo Nation, to the local economy and the state of Arizona. The plant directly employs approximately 520 people, more than 85% of whom are Navajo. The nearby Kayenta strip mine of Peabody Energy (NYSE: BTU), the plant’s coal supplier via rail service, has more than 400 employees, more than 90% of whom are also Native American.

If the lease extension is approved, there are challenges that still face NGS, SRP noted. The U.S. Environmental Protection Agency recently issued a Best Available Retrofit Technology (BART) regional haze proposal that could require an investment of up to $1.1bn in selective catalytic reduction NOX controls at the plant.

The other owners of NGS are Arizona Public Service, LADWP, Tucson Electric Power and NV Energy.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.