PNM: a look now into San Juan coal shutdowns would be premature

Parties at the New Mexico Public Regulation Commission are weighing in on a petition by commission staff to open a case about Public Service Co. of New Mexico‘s (PNM) tentative plan to shut the coal-fired San Juan Units 2 and 3 by 2017.

On July 9, PNM filed a response to what the state Attorney General had to say on the petition. In this situation, the New Mexico Environment Department (NMED), the New Mexico Environmental Improvement Board (EIB) and the U. S. Environmental Protection Agency have authority under the Clean Air Act to regulate emissions from San Juan Generating Station (SJGS), the utility noted.

The EPA has already acted to set an emissions limit on each unit of SJGS that requires the installation of selective catalytic reduction (SCR). PNM must comply if it is to continue to operate each unit of SJGS. But, as already explained to the commission in presentations to keep it updated on developments, SCR is very costly. So a deal worked out by PNM and announced on Feb. 15 arrives at an alternative solution, yet to be acted on by EIB and EPA, that holds promise for meeting the Clean Air Act requirements in a less costly manner. But this new approach requires commission approval to abandon Units 2 and 3 and obtain certificates of public convenience and necessity for replacement power, in addition to the environmental approvals required of EIB and EPA.

“There is absolutely no indication that the Commission’s authority will be preserved or impaired by the timing of when the matter is initiated with the Commission,” said PNM.

“As already demonstrated, all four units of SJGS can continue to operate if SCR is installed, should the Commission not authorize abandonment of Units 2 and 3,” the utility added. “Once PNM has been able to develop all the information necessary to allow the Commission to evaluate the agreement and alternatives, the Commission will be in the best position to exercise its authority properly. The Commission, Staff and intervenors will have ample time to examine PNM’s filing and its ramifications since Commission approval is not expected to be needed before the last quarter of 2014.”

PNM is concerned that establishing a docket now for a formal inquiry would result in the necessity to prematurely supply data that are constantly evolving as PNM refines and revises model assumptions and updates forecasts in preparation for its comprehensive filing, resulting in confusion now and after the comprehensive filing is made. PNM is currently engaged in the resource-intensive and time-consuming process of preparing the necessary case documents in anticipation of proceedings for required regulatory approvals by the commission and other regulatory agencies, none of which are completed and all of which are in early preparation stages subject to constant revisions as they are updated and refined.

PNM said it is not in a position to respond to most, if not all, of the AG’s suggested topics of inquiry until the analyses described at the open meeting of July 3 is completed. Waiting for the comprehensive filing rather than establishing a premature formal inquiry will save time and resources for all parties, including the commission and staff, by allowing discovery to proceed in a more focused manner after the comprehensive filing is made, rather than attempting a broad, “shotgun” approach to seeking information, said PNM.

Attorney General supports opening a docket now

The Attorney General’s office said in its July 3 brief: “If the PRC does not get involved in the process until PNM files a case relating to SJGS, the Commission could be preempted from a decision-making role because of the actions of other state and federal agencies that may not have a mandate to oversee utility rates to consumers. And because PNM stated at the Commission open meeting of July 3, 2013 that it will seek ‘ratemaking treatment of the unrecovered cost’ of the SJGS units it has agreed to close, it is already evident that PNM does not contemplate discontinuation of recovery of the cost of plant that will no longer be used and useful. Because this is the type of issue that could be affected by the actions of other governmental agencies and utilities, the Attorney General believes that the public interest requires that the Commission initiate a proceeding at the earliest time.”

The Attorney General said the issues to be look at in this proceeding should include:

  • Whether SJGS Units 2 and 3 should be abandoned?
  • Whether the proposed abandonment is “voluntary”?
  • What is the impact of replacing the SJGS baseload units with a natural gas plant that is not a baseload unit?
  • Where should any replacement gas unit be located?
  • Whether the timing of SJGS abandonment, which coincides with expiration of Palo Verde leaseback agreements, impacts PNM’s baseload, resource diversity and costs?
  • Comparison of the cost of required environmental retrofit of SJGS versus cost of abandonment of SJGS Units 2 and 3, including replacement power and fuel costs.
  • If abandoned, should SJGS stranded costs be recovered; should ratepayers continue to pay for the costs of SJGS that are included in current rates if the plant is not used to generate electricity for customers?

PRC staff in its June 17 petition noted that PNM has an “agreement in principle” with the NMED and the EPA to retire SJGS Units 2 and 3 by 2017, or 36 years earlier than anticipated by both PNM’s Integrated Resource Plan (IRP) and its current rate structure. PNM entered into the “agreement in principle” to settle a state and federal dispute about what pollution control technology is required the SJGS for PNM to comply with federal haze regulations under the Clean Air Act (CAA).

The SJGS, a minemouth coal facility, is one of PNM’s baseload generating facilities. SJGS consists of four coal-fired units with 1,701 MW (net) of capacity. The net generation capacity and in-service date for each of the four units at SJGS are:

  • Unit 1 – 340 MW, on line in 1976.
  • Unit 2 – 340 MW, in service in 1973.
  • Unit 3 – 498 MW, in service in 1979.
  • Unit 4 – 523 MW, in service in 1982.

PNM is the operator of SJGS and has the single largest ownership interest. PNM owns 50% of Units 1, 2 and 3 and 38.5% of Unit 4. PNM’s total ownership share is about 46.4% of the plant’s capacity or 790 MW, with various other companies holding small stakes in the plant, including Tucson Electric Power and Tri-State Generation and Transmission.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.