Salt River Project on Navajo Generating Station

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The utilities that own the coal-fired Navajo Generating Station near Page decided to close the plant at the end of 2019. The owners cited the high cost of coal for the plant in deciding to close in when their lease expires. One of those owners is Salt River Project, and SRP senior director Kelly Barr and Charlie Duckworth, the chief resource executive, will talk about why they, along with the other owners, decided to close the plant.

TED: GOOD EVENING AND WELCOME TO ARIZONA HORIZON, I'M TED SIMONS. EARLIER THIS WEEK THE UTILITY COMPANIES THAT OWN THE COAL FIRED NAVAJO GENERATING STATION NEAR PAGE ANNOUNCED THAT THEY'LL BE SHUTTING DOWN THE PLANT IN 2019. THE OWNERS HAD CONSIDERED CLOSING THE PLANT AT THE END OF THIS YEAR, BUT THE DATE WAS PUSHED OUT, AND THAT'S A GOOD THING, ACCORDING TO CONGRESSMAN TOM O'HALLERAN, WHO SAYS THAT MORE TIME IS NEEDED TO FIGURE OUT THE NEXT STEP.

TOM O'HALLERAN: WE WANT TO MAKE SURE WE HAVE AN ECONOMIC DEVELOPMENT PLAN FOR THE FUTURE FOR THOSE EMPLOYEES FOR THAT REGION AND ALSO FOR MAKING SURE THAT OUR ENERGY PORTFOLIO IN AZ AND THE SOUTH WESTERN UNITED STATES IS WHERE IT NEEDS TO BE.

TED: THE NAVAJO GENERATING STATION, OR N-G- S, IS OWNED BY A GROUP INCLUDING SRP, APS, TUCSON ELECTRIC AND THE U.S. BUREAU OF RECLAMATION, WITH SRP OPERATING THE PLANT AND OWNING THE LARGEST STAKE. JOINING US NOW IS SRP'S SENIOR DIRECTOR KELLY BARR AND CHARLIE DUCKWORTH, SRP'S CHIEF RESOURCE EXECUTIVE. GOOD TO HAVE YOU BOTH HERE. THANK YOU FOR JOINING US. WE APPRECIATE IT. WHY THE DECISION TO CLOSE IN 2019?

KELLY BARR: IT WAS A TOUGH DECISION I HAVE TO TELL YOU. WE WORKED HARD TO KEEP THIS POWER PLANT OPEN. I WAS HERE A COUPLE YEARS AGO ANNOUNCING A LARGE ENVIRONMENTAL SOLUTION. BUT AS CHARLIE CAN EXPLAIN THE OPERATIONS HAVE CHANGED. WE DECIDED WE WILL TRY TO OPERATE UNTIL THE END OF 2019 AND THIS IS IMPORTANT. IT TAKES ABOUT TWO AND A HALF YEARS TO DECOMMISSION. WE WOULD VERY MUCH LIKE TO GET THOSE AGREEMENTS TOGETHER AND OPERATE UNTIL 2019 AND GIVE FOLKS THREE YEARS OF CONTINUED EMPLOYMENT AND REVENUE AND ALLOW PEOPLE TIME TO MAKE PLANS AND DEVELOP NEW ECONOMIC DEVELOPMENT ALTERNATIVES.

TED: IT SEEMED THEY WERE CAMPAIGNING TO KEEP THE FACILITY OPEN NOT TOO LONG AGO. WHEN DID ALL OF THIS CHANGE?

CHARLIE DUCKWORTH: THROUGHOUT THE INDUSTRY WE HAVE SEEN A VERY RAPID AND DRAMATIC CHANGE IN NATURAL GAS PRICES. OVER THE LAST TWO YEARS ALONE GAS PRICES HAVE DROPPED TO LESS THAN HALF OF WHAT THEY WERE TWO YEARS AGO. IF YOU GO FURTHER BACK, GAS DROPPED TO LESS THAN A THIRD OF WHAT IT WAS FIVE YEARS AGO. THE RESULT OF THAT IS TO CONTINUE TO OPERATE THE NAVAJO GENERATING STATION WOULD RESULT IN COST THAT ARE ABOUT $100-$150 MILLION A YEAR GREATER THAN OPERATING OR GENERATING NET POWER FROM NATURAL GAS.

TED: WITH THAT IN MIND, WAS IT A YEAR AGO? YEAR AND A HALF? TWO YEARS? WHEN DID PRO BECOME CON?

CHARLIE DUCKWORTH: THE SHIFT HAS BEEN HAPPENING BY THE DROP IN PRICE IN THE LAST FIVE OR SIX YEARS DRIVEN BY THE FRACKING INDUSTRY. THERE WAS A DRAMATIC SHIFT DROP OVER THE LAST YEAR. THEN ANOTHER DROP THIS YEAR AS WELL. AS I SAID, THOSE TWO TOGETHER PUT GAS PRICES AT LESS THAN HALF.

TED: THE IDEA OF 800-PLUS JOBS. HOW MUCH DID THAT FACTOR INTO THIS? THAT IS A LOT OF FOLKS THAT WILL BE LOOKING FOR WORK IF THE PLANT CLOSES.

KELLY BARR: IT WAS A HUGE FACTOR. WE ARE SO PROUD OF THE EMPLOYEES WHO HAVE BEEN OPERATING THAT POWER PLANT FOR 40 YEARS SAFELY AND RELIABLE. IT HAS BEEN A HARD DECISION. BUT AS CHARLIE SAYS, $100-$150 MILLION IMPACT YOU HAVE TO TAKE IT SERIOUSLY. WE HAVE AN OBLIGATION TO FIND LOW-COST RESOURCES FOR OUR CUSTOMERS AND WE HAD TO TAKE A HARD LOOK AT THIS.

TED: THERE ARE SOME WHO SAY THIS WAS INITIALLY AND PERHAPS STILL IS A WAY FOR SRP TO GET A NEW LEASE. HOW DO YOU RESPOND TO THAT?

KELLY BARR: THAT IS JUST NOT TRUE. SRP IS DOING EVERYTHING WEEK TO CONTINUE TO OPERATE UNTIL 2019 -- WE CAN -- BUT WE DON'T PLAN TO CONTINUE BEYOND THAT. THERE ARE SOME FOLKS WHO WOULD LIKE TO GET NEW OWNERS TO EXPLORE THAT POSSIBILITY BUT SRP WON'T BE ONE OF THEM.

TED: THE IDEA PRESIDENT TRUMP MAY BRING ACCOUNTING CHANGES. HE WANTS TO KEEP JOBS IN AMERICA AND THE WHOLE NINE YARDS. IS THAT SOMETHING THAT WAS A POSSIBILITY? WAS IT CONSIDERED? HOW ARE THE DYNAMICS THERE?

CHARLIE DUCKWORTH: CERTAINLY THAT IS A POSSIBILITY. IT MAY HELP THE FOLKS WHO WOULD LIKE TO KEEP IT OPERATING BUT THE FUNDAMENTAL ECONOMICS ARE DRIVEN BY NATURAL GAS PRICES PAIRED WITH THE CONTINUE TO OPERATE NAVAJO AND THAT WILL NOT CHANGE.

TED: DO YOU AGREE?

KELLY BARR: TOTALLY. IT IS TOO BIG OF A STRETCH.

TED: THE DEPARTMENT OF ANTERIOR WANTS A MEETING IN MARCH TO DISCUSS THIS. IS THAT SOMETHING SRP WILL BE INTERESTED IN?

KELLY BARR: YES, WE WILL BE AT THE MEETING AS WELL AS THE OTHER OWNERS OF THE POWER PLANT.

TED: IS THERE A LIKELIHOOD A COMPROMISE COULD BE FOUND?

KELLY BARR: I DON'T BELIEVE SRP IS IN THE INTERESTED IN OPERATING THE PLANT BUT THEY MAY BE ABLE TO PUT ANOTHER GROUP BUT THAT IS GOING TO BE HARD.

TED: IS THIS A MARKET -- NATURAL GAS OBVIOUSLY CHEAPER ON THE OPEN MARKET NOW. I MEAN, FIVE YEARS AGO, THREE YEARS AGO, THAT WASN'T THE CASE. IS THERE A CONCERN THIS IS MAYBE JUST A MARKET DYNAMIC AT PLAY?

CHARLIE DUCKWORTH: SOME BELIEVE NATURAL GAS PRICES WILL RISE. MOST DON'T BELIEVE THAT. BUT RELATIVE TO THIS DECISION IT IS REALLY NOT MAJOR FACTOR BECAUSE WE CAN BUY FORD IN THE MARKET, NATURAL GAS. WE CAN LOCK UP THOSE PRICES OVER A 10-YEAR PERIOD. WE DON'T HAVE TO FACE THE POSSIBILITY OF VOLATILITY AS YOU MOVE UP.

TED: AS FAR AS, AGAIN, THE END OF 2019, THE PLANT CLOSES, IF YOU CAN GET SOME SORT OF DEAL THERE WHAT KIND OF DEAL ARE YOU LOOKING FOR? IF NOT, WE COULD STILL SEE THIS THING CLOSE AT THE END OF THE YEAR. COULD WE NOT?

KELLY BARR: SURE. AGAIN, WE ARE NOT LOOKING FOR A POST-'19 DEAL. WHAT WE NEED TO GET ACCOMPLISHED IS A NEW LEASE AGREEMENT WITH THE TRIBE THAT WOULD ALLOW US TO STAY ON TRIBAL LAND FOR THE PURPOSE OF DECOMISSIONING THE PLANT OR TURN IT OVER TO A DIFFERENT OPERATING GROUP. BUT THE LEASE ENDS AT THE END OF 2019 SO WE HAVE TO BE OFF THE TRIBAL LAND UNDER THE CURRENT LEASE AND THAT IS WHY THIS NEW LEASE IS SO IMPORTANT BECAUSE WE NEED TO BE ABLE TO STAY ON THE LAND POST-2019.

TED: RIGHT AND LAST POINT HERE. IF THE CORPORATION COMMISSION ORDERED STAKEHOLDERS, OBVIOUSLY SOME STAKEHOLDERS, NOT SRP, BUT ORDER STAKEHOLDERS TO KEEP THE PLANT OPEN WOULD SRP STILL PULL OUT?

KELLY BARR: I BELIEVE THAT WE WOULD. I BELIEVE WE HAVE MADE A DECISION THAT THIS IS IN THE BEST INTEREST OF OUR CUSTOMERS. WE TOTALLY UNDERSTAND THE CONCERNS OF THE NAVAJO NATION AND THE N G S EMPLOYEES SO WE ARE DOING EVERYTHING WE CAN TO CREATE THAT EXTRA TIME SO WE CAN COME UP WITH A GOOD TRANSITION.

TED: AND LAST QUESTION. AS FAR AS THE OPEN MARKET IS THERE, BUYERS ARE THERE, SOURCES ARE THERE AND YOU ARE CONFIDANT ONCE THIS GOES AWAY THAT WILL BE THERE?

CHARLIE DUCKWORTH: YES, WE BELIEVE THAT WE WILL BE ABLE TO GET THE NATURAL GAS AND THE REPLACEMENT RESOURCES, ABSOLUTELY.

TED: WITHOUT MUCH OF A HICCUP?

CHARLIE DUCKWORTH: WITHOUT A HICCUP.

TED: GOOD TO HAVE YOU BOTH HERE. THANK YOU FOR JOINING US.

Kelly Barr: SRP senior director
Charlie Duckworth: Chief resource executive

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