One or more San Juan plant owners may buy the supplying coal mine

The co-owners of the coal-fired San Juan coal plant in New Mexico have been busy lately doing everything from working out issues with four owners exiting the plant, other owners taking new shares of the plant, the eventual retirement of two of four units and the working out of a new coal supply contract.

Several Public Service Co. of New Mexico (PNM) officials on Oct. 31 filed testimony at the New Mexico Public Regulation Commission in support of a stipulated agreement over issues related to the San Juan situation. Among them was Chris Olson, the Vice President-Generation for PNM.

San Juan is a four-unit, 1,683-MW (net) coal-fired station. It is located in Waterflow, New Mexico, fifteen miles west of Farmington. The net generation capacity and in-service dates for each of the four units at San Juan are:

  • Unit 1 – 340 MW, on line in 1976
  • Unit 2 – 340 MW, on line in 1973
  • Unit 3 – 496 MW, on line in 1979
  • Unit 4 – 507 MW, on line in 1982

Under a regional haze deal with the U.S. Environmental Protection Agency, instead of installing expensive selective catalytic reduction technology on all four units, the plant owners will shut Units 2 and 3 and install cheaper selective non-catalytic reduction (SNCR) for NOx control on Units 1 and 4.

BHP may sell the coal mining operation to a plant owner, or someone

San Juan is what is known as a “mine mouth plant” which means that it procures all of its fuel from the adjacent San Juan Coal Mine, which these days is an underground mine after economic surface-minable reserves ran out. The San Juan Coal Mine is operated by San Juan Coal Co. (SJCC), an affiliate of international miner BHP Billiton. Coal is supplied to Juan pursuant to the Underground Coal Sales Agreement (UG-CSA), which expires at the end of 2017. The expiration of the UG-CSA corresponds with the retirement of San Juan Units 2 and 3.

By the way, the San Juan owners that wil stick around for the long term at the plant are known as the “Remainers” by Olson.

“A post-2017 fuel supply is an essential element for the continued, long-term operation of San Juan,” wrote Olson. “PNM and the other Remainers have specially recognized this in the context of the San Juan ownership restructuring agreements. To that end, PNM, along with representatives of the other Remaining Participants, are engaged in confidential negotiations with the objectives of confirming a fuel supply for post-2017 plant operations and obtaining indicative pricing for this supply. The anticipated timeframe to meet this objective is by this year’s end. PNM and the other Remaining Participants are in the process of negotiating with SJCC and BHP concerning a future fuel supply for San Juan.

“On October 1, 2014, the San Juan Fuels Committee approved a resolution authorizing an amendment to the UG-CSA that provides for the negotiation of a potential purchase transaction for the mine assets to be consummated on or before December 31, 2016. The purchaser could be one or more of the San Juan owners, an affiliated company, or a third-party agreed to by the parties. On October 2, 2014, the parties entered into an agreement that provides the San Juan participants with access to data necessary to evaluate the mine assets and liabilities. If the mine assets are acquired from SJCC, it is contemplated that a third-party miner would be engaged to conduct mining operations on a contract basis or would assume ownership of the mine assets and carry out the mining operations.”

Olson said it is important to remember that this mining operation has supplied the adjacent power plant since it was built in the early 1970s and that there are plenty of coal reserves left for the slimmed-down power plant.

Two units to be retired by the end of 2017

As for the regional haze deal with the feds, codified under a state implementation plan (SIP) from the state of New Mexico, Olson wrote: “In very basic terms, the San Juan owners will be required to retire Units 2 and 3 by December 31, 2017, and to install SNCR technology on Units 1 and 4 within fifteen months of the EPA’s approval of the Revised SIP, but no earlier than January 31, 2016. The Revised SIP imposes a NOx limit on Units 1 and 4 of 0.23 lb/MMBtu on a 30-day rolling average. San Juan Units 1 and 4 will also be required to meet an average sulfur dioxide (‘SO2’) emission rate of 0.10 lb/MMBtu which is reduced from the current permitted emission rate of 0.15 lb/MMBtu. The new SO2 emission limit became effective March 5, 2014.”

Olson added: “Of course the Revised SIP will allow the San Juan owners to avoid the significant capital costs associated with the installation of SCR technology at San Juan. In addition, under the Revised SIP, the San Juan owners will not have to install SNCR technology on Units 2 and 3 or convert these units to a balanced draft configuration. Pending the retirement of Units 2 and 3, the San Juan owners will limit capital investments and other expenses to only what is reasonably necessary for the continued reliable operation of these units in conformity with prudent utility practice.”

When a decision has been made regarding a long-term fuel supply, the costs of implementing the fuel supply strategy will be based on a MW share of the plant in 2018 as follows:

  • PNM, 58.671%;
  • Tucson Electric Power, 20.068%
  • City of Farmington, New Mexico, 12.749%
  • City of Los Alamos, New Mexico, 4.309%
  • Utah Associated Municipal Power Systems, 4.203%

Those dropping out of ownership in the meantime will be the city of Anaheim (in California), the Southern California Public Power Agency, the M-S-R Public Power Agency and Tri-State Generation and Transmission.

Because Units 1 and 4 will remain in operation and rely on certain common facilities with Units 2 and 3, it is not readily feasible or desirable to physically remove the two retired units. In addition, there is no specific contractual or legal requirement that, upon their retirement, Units 2 and 3 need to be dismantled. While some steps will no doubt be taken to drain fluids from and to otherwise secure Units 2 and 3, these units will be retired in place, Olson said.

Besides SNCR, two surviving units to get balanced draft conversion

Like many power plants of the same vintage, the San Juan boilers were originally designed with only forced draft (F.D.) fans. These boilers and associated flues and ducts operate at positive pressure, experiencing numerous start-up cycles. As these units have aged, and after the flue gas pressure boundary has typically deteriorated. This deterioration allows ash-laden flue gases and coal particles to escape from the boiler, flues, ducts and other air or flue gas path components. Ash and coal that accumulates outside of the boiler pressure boundary pose various maintenance and cleanliness issues. The environmental regulators are aware of these issues and the resulting potential compliance issues related to particulate emissions under the NAAQS. For this reason, New Mexico regulators, as part of an amendment to San Juan’s New Source Review permit, required that San Juan convert to a balanced draft configuration. Balanced draft is achieved by installing induced draft (I.D.) fans to balance the pressure in the boilers, flues and ducts.

In order to meet the regulatory deadline, PNM commenced the bidding and construction process to complete the project in a timely manner. As an initial step in the implementation of the SNCR Project, PNM engaged Sargent & Lundy (S&L) to prepare a comprehensive design and engineering plan for the installation of SNCR on Units 1 and 4 and for the equipment and modifications necessary to convert San Juan to balanced draft.

Graycor Industrial Constructors was the successful bidder on the construction work for San Juan Unit 1, the first unit to undergo the upgrade. PNM selected STEAG Energy Services LLC to supply the SNCR equipment. 

All of the equipment for the SNCR Project for San Juan Unit 1 is under contract. The equipment engineering is about 95% complete. STEAG commenced equipment fabrication on Oct. 2, 2014. The fabrication for the variable frequency drives for the balanced draft conversion is complete and they are being shipped. The ductwork panels for bypassing the electrostatic precipitators are being received and field assembly has commenced.

The outage for the SNCR Project at San Juan Unit 1 is scheduled for the period from Feb. 14, 2015, through April 6, 2015. The installation of certain SNCR components and the conversion to balanced draft will take place during this outage. Complete installation and commissioning of the SNCR equipment will occur after the outage and conclude on or before Jan. 31, 2016. The total SNCR Project budget for San Juan Unit 1 is $73m.

The design engineering work for San Juan Unit 4 is ongoing. The final General Works Construction Specifications should be completed by February 2015. The engineering on this SNCR equipment is 75% complete and STEAG was given a release for fabrication on Oct. 2, 2014. The release for fabrication of the I.D. draft fans and motors was issued on that same date. The engineering on the variable frequency drives for the I.D. fan motors is ongoing. It is anticipated that construction on San Juan Unit 4 will be contracted to Graycor using an open book pricing structure to develop a firm price for the work. The outage for installation of SNCR and conversion to balanced draft at San Juan Unit 4 is scheduled for Oct. 3, 2015, through Nov. 17, 2015. The estimated total budget for the SNCR Project at San Juan Unit 4 is $81m.

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.