Federal judge tosses permit for mine serving Four Corners power plant

A federal judge on March 2 ruled against the U.S. Office of Surface Mining in a May 2012 lawsuit brought by the Sierra Club and other parties over permitting for a coal mine that serves the Four Corners Power Plant.

Judge John Kane, sitting in the U.S. District Court for the District of Colorado, noted in his March 2 ruling: “Despite hundreds of pages of briefing and a voluminous administrative record, this case presents a relatively straightforward question: must the Office of Surface Mining Reclamation and Enforcement (‘OSM’) consider the environmental impacts related to the combustion, at the Four Corners Power Plant, of coal that will be mined as a result of OSM’s approval of the Navajo Transitional Energy Company’s (‘NTEC’) Permit Revision Application? Because I answer this question in the affirmative, and because I find that OSM failed to adequately consider those same impacts in its Environmental Assessment (‘EA’) for NTEC’s Permit Revision Application, the Petition for Review of Agency Action is GRANTED. The balance of this opinion discusses the factual and legal basis for this conclusion.”

NTEC is an entity controlled by the Navajo Nation, with the mine a major employer of tribal members. NTEC took over the mine around the end of 2013.

The Navajo Mine, which extracts coal from the Fruitland Formation, exists for the sole purpose of supplying coal to the nearby Four Corners plant. In 1960, the original operator of the mine, BHP Navajo Coal Co., negotiated a contract with Arizona Public Service to provide coal to the Four Corners Power Plant, which is located adjacent to the northern end of the mine. Coal has been produced from the Navajo Mine since 1963, solely for use at the Four Corners plant.

In the contested action at issue in the court case, BHP first sought to expand mining operations into a 3,800 acre area of the Navajo Mine known as “Area IV North” in 2005. OSM completed an environmental assessment (EA) for the permit revision that determined that the expansion of operations proposed would have no significant impact on the quality of the human environment, and approved the revision in October 2005. Soon after, two of the petitioners in this court action, Diné Citizens Against Ruining our Environment (DCARE) and San Juan Citizens Alliance, filed suit challenging OSM’s approval of BHP’s proposed expansion of operations into Area IV North.

In October 2010, this federal judge reviewed and rejected OSM’s approval of revision, remanding the application to OSM for further proceedings. Following that 2010 remand, BHP submitted a revised application to OSM, seeking permission for a more modest expansion of its operations into Area IV North. OSM developed a draft EA reviewing the potential environmental impacts of the expansion of operations proposed in the revision. After taking public input, and issuing a final EA, OSM approved the revision, with conditions. Shortly thereafter, DCARE, San Juan Citizens Alliance, Sierra Club, Center for Biological Diversity and Amigos Bravos filed this lawsuit alleging that OSM’s EA failed to comply with the National Environmental Policy Act (NEPA) and its implementing regulations. Specifically, they argued that OSM should have considered the environmental impacts related to the combustion of coal that will be mined as a result of OSM’s approval of NTEC’s revision and the environmental impacts of the disposal of the resultant coal combustion waste.

Wrote the judge in his March 2 decision: “NEPA does not forbid an agency from engaging in environmentally destructive activities, it merely requires that the agency adequately consider the environmental impacts of its activities before committing resources to its chosen course of action. Because OSM failed to adequately consider the reasonably foreseeable combustion-related effects of NTEC’s proposed expansion of operations at the Navajo Mine, the Petition for Review of Agency Action is GRANTED. In light of this decision and pursuant to the Joint Case Management Plan, the parties shall confer in an effort to reach an agreement with respect to the appropriate remedy. If no agreement as to the appropriate remedy is reached, the parties shall submit no more than ten pages of briefing addressing the appropriate remedy no later than March 23, 2015.”

The judge indicated that his ruling was in part because of the unique relationship between the mine and the power plant, since this coal doesn’t go to some undefined and ever-changing group of power plants, like is the case for most coal mines that operate over many years.

“Unlike a scenario in which a coal mine markets its coal freely to multiple buyers, each of whom uses that coal in different applications under different constraints, there is virtually no uncertainty regarding when, where, and how the coal mined as a result of NTEC’s proposed mine expansion will be combusted,” he wrote. “All of the coal mined from Area IV North will be combusted at the Four Corners Power Plant. Because there is no uncertainty as to the location, the method, or the timing of this combustion, it is possible to predict with certainty the combustion-related environmental impacts. Accordingly, I find that the coal combustion-related impacts of NTEC’s proposed expansion are an ‘indirect effect’ requiring NEPA analysis.”

Four Corners plant ownership in flux

Four Corners is a five-unit coal-fired plant located in the northwestern corner of New Mexico. APS operates the plant and owns 100% of Four Corners Units 1, 2 and 3 and 63% of Four Corners Units 4 and 5 following a late 2013 acquisition of Southern California Edison‘s (SCE) interest in Units 4 and 5. At the end of 2013, APS retired Units 1, 2 and 3. APS has a total entitlement from Four Corners of 970 MW.

Said APS parent Pinnacle West Capital in its Feb. 20 annual Form 10-K report about a late-2013 action: “Concurrently with the closing of the SCE transaction, BHP Billiton, the parent company of BNCC, the coal supplier and operator of the mine that serves Four Corners, transferred its ownership of BNCC to NTEC, a company formed by the Navajo Nation to own the mine and develop other energy projects. BHP Billiton will be retained by NTEC under contract as the mine manager and operator until July 2016. Also occurring concurrently with the closing, the Four Corners’ co-owners executed a long-term agreement for the supply of coal to Four Corners from July 2016, when the current coal supply agreement expires, through 2031 (the ‘2016 Coal Supply Agreement’).”

The Form 10-K added: “[El Paso Electric], a 7% owner in Units 4 and 5 of Four Corners, did not sign the 2016 Coal Supply Agreement. Under the 2016 Coal Supply Agreement, APS has agreed to assume the 7% shortfall obligation. On February 17, 2015, APS and El Paso entered into an asset purchase agreement providing for the purchase by APS, or an affiliate of APS, of El Paso’s 7% interest in each of Units 4 and 5 of Four Corners. The cash purchase price, which will be subject to certain adjustments at closing, is immaterial in amount, and the purchaser will assume El Paso’s reclamation and decommissioning obligations associated with the 7% interest. Completion of the purchase is subject to the receipt of certain regulatory approvals and is expected to occur in July 2016.

“When APS, or an affiliate of APS, ultimately acquires El Paso’s interest in Four Corners, NTEC will have an option to purchase the interest within a certain timeframe pursuant to an option granted by APS to NTEC. The 2016 Coal Supply Agreement contains alternate pricing terms for the 7% shortfall obligations in the event NTEC does not exercise its option.”

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.