Advisories & Insights

Coal plant joint venture between Navajo Tribe and private developer moves forward with issuance of draft EIS

May, 2007

The Bureau of Indian Affairs ("BIA") recently issued a Draft Environmental Impact Statement ("DEIS")[i] for a multi-billion dollar project being developed by an Indian tribe and a private developer. The $2.5 billion[ii] Desert Rock Energy Project ("Project"), a joint venture between Diné Power Authority ("DPA"), an enterprise of the Navajo Nation, and Desert Rock Energy Company, LLC,[iii] proposes a hybrid dry cooled coal-fired electric power plant on the Navajo Indian Reservation, fueled by low-sulfur coal mined at the adjacent Navajo Mine.

The Indian Energy Act

The Indian Tribal Energy Development and Self-Determination Act of 2005 ("Indian Energy Act"),[iv] which was promulgated under the authority of Title V of the Energy Policy Act of 2005 ("EPAct 2005"),[v] provides for technical assistance, grants, and low-interest loans to tribes and "tribal energy resource development organizations" for developing energy resources on tribal land. Under the Indian Energy Act, "tribal energy resource development organizations" eligible for grants and loans may include non-tribal entities,[vi] and developable energy resources may include both renewable and non-renewable energy sources, such as natural gas, oil, uranium, coal, nuclear, wind, solar, geothermal, biomass, and hydrologic resources.[vii] If the Project is successful, it may encourage more ventures like it to be implemented, using the assistance made available by the Indian Energy Act.

The Proposed Project

DPA and Desert Rock Energy Company, LLC have proposed a coal-fired electric power plant within the Navajo Indian Reservation, approximately 30 miles southwest of Farmington, New Mexico. The plant would have the capacity to generate up to 1,500 megawatts of power - enough power for approximately 1.2 million homes. The power plant would occupy land leased from the Navajo Nation under a 50-year lease between the Navajo Nation and DPA, and then subleased to Desert Rock Energy Company, LLC. Because the leased land is held in trust by the United States for the Navajo Nation, the BIA must approve the land-lease,[viii] and the BIA's approval of the lease and other aspects of the proposed project is a major federal action requiring the preparation of an EIS. The Navajo Nation Council approved the lease agreement in May, 2006, contingent upon the completion of the Environmental Impact Statement ("EIS") and Record of Decision from the BIA.[ix]

The coal for the power plant would be mined at the Navajo Mine, operated by the BHP Navajo Coal Company ("BNCC"), which lies immediately adjacent to the parcel proposed for the power plant. BNCC is an operation of BHP Billiton, the world's largest mining company,[x] and the Navajo Mine is the sixteenth largest coal mine in the United States.[xi] BNCC's existing surface-coal-mining operations would be expanded to meet the needs of the power plant, providing 6.2 million tons per year for the 50-year life of the mine.

The agreement between DPA and Desert Rock Energy provides the Navajo Nation with the financial support and resources to develop the Navajo Nation's coal resources. According to the DEIS, DPA and Desert Rock Energy propose to generate and sell electrical power at competitive prices, using Navajo coal, to: (1) meet the forecasted energy demands of the growing populations of the southwestern United States, particularly those in Arizona, New Mexico, and southern Nevada; and (2) provide fuel diversity and a stable, predictable power supply for utilities in the Southwest.[xii]

Supporting facilities for the power plant would include a well-field that would draw 4,500 acre-feet per year (af/yr) for project-related purposes and an additional 450 af/yr for local municipal use, and transmission lines and ancillary facilities for the production and transmission of power to utilities in the Southwest. The Navajo Nation and DPA agreed to a Large Water User Master Agreement to provide and sell groundwater to the Project in January, 2006.[xiii]

The Project, which is supported by the tribal government, represents a substantial economic development for the Navajo Nation and is expected to provide 1,600 construction-related and 420 permanent jobs and tax and royalty payments to the Navajo Nation of $43 million per year.[xiv]

Opposition to the Project

The project's opponents are primarily concerned that emissions from the Project will adversely affect an airshed that is already degraded by emissions from other, older power plants in the Four Corners region. To address that concern, the Project's draft air permit requires the use of emissions controls[xv] which project proponents say will make the Project one of the cleanest in the United States, and up to ten times cleaner than older coal-fired power plants.[xvi]

To address opponents' concerns, the Navajo Nation and Desert Rock Energy have agreed to additional reductions of emissions beyond those than are required under the draft air permit, under the terms of a May 16, 2007 memorandum of understanding.[xvii] The memorandum proposes a Voluntary Air Emissions Reduction Plan that would establish methods for mitigating impacts from sulfur dioxide, nitrogen oxide, and mercury emissions. The proposed Plan aims for 110% sulfur dioxide and nitrogen oxide emission reductions and 90% mercury emissions reductions.[xviii] If the Project fails to meet its sulfur dioxide and nitrogen oxide emission reduction goals, Desert Rock Energy will retire $3 million in emissions credits, so that the net effect of the Project's operations will be a decrease in emissions in the Four Corners area.[xix]

DPA and Desert Rock Energy's parent, Sithe Global Power LLC, have been unsuccessful in their efforts to obtain an $85 million state tax break for the Project New Mexico state legislature.[xx] Earlier this year the measure was narrowly defeated at the close of the legislative session, due in part to strong opposition from members of the Navajo Nation and members of environmental and public policy groups including the Coalition for Clean Affordable Energy, the Sage Council, the Sierra Club, Conservation Voters New Mexico, the San Juan Citizens Alliance, New Energy Economy, New Mexico Interfaith Alliance for Environmental Stewardship, Climate Change Action Project, and the League of Young Voters.[xxi]

Next Steps

EPA is presently considering comments that it received during the public review and comment period for the draft air permit. Project proponents expect EPA to issue the final permit in June, 2007. A 60-day public review and comment period for the DEIS will be initiated when the Notice of Availability of the DEIS is published in the Federal Register (expected in early June 2007). Public hearings will be held June 18 - 21, 2007. After the public review and comment period closes, the BIA will consider the comments and issue a Final EIS and Record of Decision later this year.

Conclusion

The DEIS selected the development of the Project proposed by DPA and Desert Rock Energy as the preferred alternative.[xxii] The BIA's support of the Project is an important step forward for the project proponents.[xxiii] However, the project faces opposition due to concerns about greenhouse gas emissions and can be expected to come under intense scrutiny. If the Project is approved, it may be a signal to other tribes to take advantage of the opportunities presented by the Indian Energy Act for energy resource development on Indian reservations.

For more information about the Indian Energy Act and siting energy projects on Indian reservations, contact Connie Sue Martin.