Analysis Uncovers "Nearly $2 Billion in Errors" in Peabody's Misleading Study About the Future of NGS

A detailed analysis of a presentation made by Peabody Energy at an April 7 meeting of the Arizona Corporation Commission highlights major discrepancies and misleading information about the reality of continuing to run the largest coal-burning power plant in the West past the 2019 closure date set by its owners.

The analysis was conducted by utility research firm Synapse Energy Economics at the request of the Sierra Club to evaluate questionable claims made by Peabody and its consultant, Navigant Research, about the future of the 2,250-megawatt Navajo Generating Station in northern Arizona.

"Navigant's assessment of the economic viability of Navajo is opaque, and relied on overstated market energy prices and substantially understated fuel prices for Navajo. Reviewing the elements of Navigant's assessment, we find substantial problems mounting up to nearly $2 billion in errors, faulty assumptions and exclusions."

After reverse-engineering key assumptions in their study, Synapse determined that Peabody and Navigant:

1. Relied on overblown assumptions about coal and market energy prices in 2030, when in fact, Navigant's own analysis shows little benefit for NGS unless the coal market recovers, which most energy industry analysts consider highly unlikely.

2. Consistently underpriced coal in their calculations. Using more realistic coal pricing projections through 2040 would add about $620 million in costs to running NGS, "completely erasing Navigant's assumed benefit for Navajo."

3. Completely ignored operations and maintenance expenses tied to running NGS as if they didn't exist, when in fact industry norms and actual operator data from the past five years show that O&M costs can be quite substantial.

4. Aggressively over-inflated market energy prices starting in 2030 to make NGS electricity seem more lucrative. Navigant and Peabody unrealistically project that energy prices will rise roughly three times faster than inflation.

5. Applied market dynamics that are not at all relevant to Western energy markets. The North American Reliability Council expects Arizona and New Mexico to remain flush with energy capacity through at least the mid-2020s, meaning there simply is no liquid market for capacity in the West, unlike the Midwest and East Coast. Yet Peabody and Navigant inexplicably applied market pricing that is 46 times higher than actual market prices in the Midwest, where there actually is a market based on constrained capacity.

Peabody's hasty and unsubstantiated Powerpoint presentation was delivered to the ACC just three days after the company exited from bankruptcy. It claimed that all four utility owners of NGS - Salt River Project, Arizona Public Service, Tucson Electric Power and NV Energy - were misguided in announcing their intention earlier this year to retire the plant at the end of 2019, and possibly as soon as this year. The owners have concluded that they can acquire power far more cheaply on the open market and that they risk losing hundreds of millions of dollars a year if they continue to operate NGS.

Peabody operates the Kayenta mine, the sole supplier of coal for NGS, and is searching for ways to keep its mine open in the wake of its bankruptcy, including using taxpayer subsidies to lower the costs of running NGS. Despite repeated requests, it has yet to share the underlying analysis it used in its ACC presentation to sidestep the fundamental economic problems facing coal, which is in sharp decline as cleaner and cheaper energy sources replace it in the market.

The Arizona Corporation Commission is scheduled to hold its next open hearing on May 9-10. This meeting is open to the public and can be streamed from: https://www.azcc.gov/divisions/broadcastservices/livebroadcast.htm

Sandy Bahr, director of the Sierra Club's Grand Canyon Chapter, issued the following statement:

"Arizonans want public officials and coal companies to be honest with them about the future of the Navajo Generating Station and the Kayenta Mine. Peabody's unsubstantiated statements that the coal plant is an economic and reliable source of energy for the region going forward is simply not true. It's time to be realistic about the future of coal in Arizona so that the Navajo and Hopi people are not left behind or left with a big mess when coal inevitably leaves the communities."

Percy Deal, from Navajo group Dine CARE, issued the following statement:

"Continuing to operate the Navajo Generating Station is not a long-term solution for the Navajo and Hopi, who for the last 50 years have seen this plant wreck the environment, rob us of our water, and leave us without the resources to build a sustainable economy. Peabody is obviously only interested in its own corporate bottom line and not in the economic and environmental wellbeing of the Navajo and Hopi."

Nicole Horseherder, of To Nizhoni Ani, issued the following statement:

"The only real path to support the Navajo Nation long-term is to back a transition plan that invests in renewable energy and job creation, cleans up and remediates the pollution the plant and mine have left behind, takes care of our water and environment, and addresses the health impacts our families have suffered as a result of using coal. Using an intentionally misleading analysis to argue for the plant to stay open is the opposite of helping the Navajo and Hopi."