utility seeks investors to reopen Mohave coal plant
By Mark Golden
4:22 PM ET Oct 6, 2006
(MarketWatch) -- A publicly owned Arizona utility is
on the hunt for investors who will share its dream of
restarting a shuttered coal-fired power plant in the
Nevada desert that was abandoned by its other owners.
Salt River Project is working to build a new ownership
group to buy and upgrade the 1,580-megawatt Mohave Generating
Station. The plant, in Laughlin, Nev. near the Arizona
border, was shut in December because its owners hadn't
installed pollution control equipment required under
a court-approved consent decree. The plant also faced
other problems, including expiring coal and water supply
contracts. To resolve a lawsuit by environmentalists
concerned about the harmful effects of pollution from
Mohave on wildlife at the nearby Grand Canyon National
Park, the plant's owners agreed to either install pollution-control
equipment or shut the plant by the end of 2005.
A new group
of owners would need to buy the interest in the plant
owned by SRP's current partners, which have said they
aren't interested in upgrading the plant at a cost of
about $1 billion. Edison International's (EIX) Southern
California Edison owns 56% of the plant. Sierra Pacific
Resources' (SRP) Nevada Power owns 14% and the Los Angeles
Department of Water & Power owns 10%. SRP currently
owns 20%, but is willing to take a bigger stake.
wouldn't be moving ahead if we didn't think we could
put together a new group of owners," said John
Coggins, Salt River's manager of resource planning and
SRP has had
informal discussions with other energy companies and
expects a competitive process with indicative bids to
the current owners by the end of this year, and a binding
proposal by April, said Coggins
In Arizona A potential investor is Tuscon, Ariz.-based
Unisource Energy (UNS).
had talks with SRP about playing some role in Mohave,
but we haven't come to any conclusion as to what role,
if any, we'll play," said Unisource spokesman Joe
to owning Tucson Electric Power, Unisource has a division
with some 225,000 utility customers in western Arizona
near the Mohave plant. That division, Unisource Energy
Services, currently buys its wholesale power from Pinnacle
West Capital Corp. (PNW), the Phoenix-based owner of
Arizona Public Service Co., under a contract that expires
Service, too, could possibly become part of Mohave's
new ownership group, or buy power from the modernized
plant under a long-term contract.
not had any discussions that I'm aware of, but we would
look closely at any opportunity that could provide economical
and reliable energy to our customers," said Arizona
Public Service spokesman Mark Fallon.
of potential investors is limited. PNM Resources (PNM)
is part of that universe, though a spokesman said as
a matter of policy, the utility wouldn't disclose any
discussions on a project like Mohave.
seems unlikely. New Mexico - like California - is moving
to reduce emissions of carbon dioxide, which is considered
to be the main cause of global warming. Coal-fired plants
emit more CO2 than most other types of electric generators,
and SRP's plans for Mohave don't include capturing CO2.
Change An Issue
law signed by California Gov. Arnold Schwarzenegger
prohibits Edison and LADWP from investing in a conventional
coal-fired power plant or purchasing conventional coal-fired
power. Although PNM doesn't have such restrictions,
the company thinks climate change is a real problem
the U.S. should act on.
In a recent
interview, a PNM executive said investments in coal-fired
plants should go toward gasified coal. The technology
is still in development, but it would allow for easier
sequestration of CO2 down the line.
PNM's regulated utility, the Public Service Co. of New
Mexico, has a rapidly growing base of customers, as
do all Southwest utilities. And PNM continues to expand
in the competitive retail power market.
said that equipment to capture CO2 technology could
eventually be added to Mohave if needed.
new Mohave investors might include one or more independent
power producers. Investing in coal could be seen as
a hedge against volatile natural gas prices, which have
hurt companies like bankrupt Calpine Corp. (CPNLQ) that
rely too heavily on gas-fired power plants. Independent
power producers that have bought older coal-fired plants
and nuclear plants generally have fared better.
current owners are split on SRP's plans to restart the
plant. Edison cheered the move, while LADWP said the
hurdles are too great to overcome. In addition to securing
a new water supply, Mohave's owners would have to build
a new water pipeline, negotiate a new coal contract,
install sulfur-dioxide scrubbers estimated at $500 million,
rebuild a coal-slurry pipeline and obtain the necessary
environmental permits before reopening the plant.
well as some environmental organizations, would like
to see the coal plant replaced by a renewable energy
the Hopi Tribe and Navajo Nation, whose lands have supplied
the coal and water for Mohave, support the plant's continued
operation, the tribes have blamed the operation for
drying up their wells and complained that they were
underpaid for the coal and water the plant used for
30 years. The Black Mesa mine, leased by Peabody Energy
Corp. (BTU), is Mohave's only source of coal and Mohave
is the sole purchaser of coal from the mine. An agreement
with the tribes over the water supply is required to
obtain a mining permit from the Department of the Interior.
SRP has identified
an aquifer near Leupp, Ariz. as a possible new water
source. Water is required to transport the coal via
a 273-mile slurry pipeline from the mine in northeast
Arizona to the plant in southeast Nevada.
looks for potential investors, SRP is advancing its
plans. It has asked the Office of Surface Mining and
other agencies to resume work on an environmental impact
statement as soon as possible.
will have to assess the value of the project and assess
whether we can overcome the obstacles," said SRP's
Coggins. He added that Mohave is attractive when "compared
with other options" like building a completely
new coal-fired plant.
A new 1,500-MW
coal-fired plant would cost more than twice Mohave's
$1-billion upgrade. The assumption of some further cost
to limit CO2 output applies to any coal-fired project,
but the costs of running a coal-fired plant may still
be cheaper than those of a gas-fired plant or a plant
using renewable sources like wind and solar panels.
If all goes
as planned, Mohave would restart by late 2010 or 2011.