The Los Angeles Department of Water and Power is the third-largest stakeholder in the coal-fired Navajo Generating Station behind U.S. Bureau of Reclamation and Salt River Project. The SRP has reached a deal to buy LADWP's 21.2% stake.

DALLAS — The Los Angeles Department of Water and Power's sale of its 21.2% stake in the coal-fired Navajo Generating Station is nearing its conclusion after three years of negotiation with the Salt River Project.

The deal will nearly double SRP's 21.7% stake in the NGS and allow LADWP to accelerate its exit from coal-fired power generation.

LADWP will have to defease $59.3 million of NGS tax-exempt bonds within 90 days using equity or proceeds of taxable debt, according to department officials.

The LADWP board is scheduled to vote on the deal May 19, with Los Angeles City Council approval to follow.

SRP's board of directors approved the agreement May 14.

When the deal closes, SRP will pay $10 million, and LADWP will receive $2.89 million for settlement of its stake in the coal mine that serves the plant.

SRP will also swap its 20% interest in the defunct Mohave Generating Station in Laughlin, Nev., primarily in the form of 2,500 acres of land, to LADWP. SRP will also cede its interests in the Eldorado Transmission System to LADWP but will retain its pre-closing liabilities for the system and the MGS.

LADWP will continue to carry liabilities for the NGS that could range up to $17 million. Liabilities for the Kayenta Mine that serves the plant could be up to $15 million, according to the terms of the deal.

The city owned utility is divesting from the Navajo station as part of its long term carbon emissions reduction goals, which include eliminating coal as a fuel supply for carbon generation.

"Depending on the market conditions at the time of the divestiture, LADWP may have to redeem or defease the bonds at a slightly higher price than the par amount of $59.3 million," according to a letter to the board from David H. Wright, senior assistant general manager for the power system and general manager Marcie L. Edwards.

The sale will allow SRP to implement an Environmental Protection Agency rule to significantly reduce emissions from the plant by 2020, officials said.

"This agreement is critical to facilitating the EPA's final rule to reduce NOx [nitrogen oxides] emissions from NGS," said John Sullivan, SRP's deputy general manager. "By assuming LADWP's ownership share of the plant, we can make the necessary approvals that will ensure significant emission reductions from NGS."

SRP's short-term increase in ownership share of the plant will revert to its current amount in 2020 when one of the three NGS units is shut down.

The 2,250 megawatt power station on the Navajo reservation employs about 500 people, representing a major economic force for the tribe. The Kayenta Mine that supplies fuel to the power plant has more than 400 employees.

The other owners of NGS are Arizona Public Service Co., Tucson Electric Power Co. and NV Energy. Under federal law, a portion of the electricity generated by NGS is committed to federal purposes, including the operation of the Central Arizona Project water canal and financial support of certain Arizona Indian water settlements.

The Federal interest in NGS is managed by the U.S. Bureau of Reclamation.

SRP is a community-based nonprofit public power utility, serving about 1 million customers in Maricopa and Pinal counties.

NGS provides nearly all of the energy needed to move water in the Central Arizona Project canal from the Colorado River near Lake Havasu through central Arizona and then to Tucson.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.