Power groups pull out of deal related to San Juan coal plant in New Mexico

The New Mexico Independent Power Producers (NMIPP) group told the New Mexico Public Regulation Commission on Jan. 20 that it is pulling out of a stipulated deal with Public Service Co. of New Mexico about issues related to the planned shutdown of part of the coal-fired San Juan power plant and related restruturing of the ownership of the surviving capacity.

Robb Hirsch, Executive Director of the group noted that the NMIPP is a signatory to the stipulation filed in this matter on Oct. 1, 2014.

“Although we commend the Public Service Company of New Mexico (‘PNM’) for originally reaching agreement with EPA and the State of New Mexico to retire Units 2 and3 of the San Juan Generation Station and we appreciate that the company is now finally offering coal-related conditions, NMIPP has concluded for the reasons stated below that we must withdraw from the Stipulation. In doing so, we focus squarely on issues pertainaing to San Juan Generating Station and a commensurate more balanced replacement plan. The other aspects of the Stipulation by and large we are not opposing.

“However, stepping out of the legal jargon of this case and into the light of a new day we note Churchill’s timeless advice ‘never let a good crisis go to waste.’ We believe there is opportunity hidden in this challenging case about our electrical generation future and New Mexico should seize it.

“On January 13, 2015, PNM informed NMIPP and other parties to lhis matter that the City of Farmington will not be acquiring an additional 65 MW of coal from San Juan Generating Station (‘SJGS’) Unit 4. Although PNM has indicated it will not accquire this additional 65 MW of coal, NMIPP understands that PNM Resources (‘PNMR’) plans to take on this additional capacity (as a merchant resource), and this is unacceptable to us.

“NMIPP believes that picking up an additional 65 MW is not a well thought out decision. Rather, it continues to set a troublesome precedent – on top of the proposed, new 132 MW acquisition by PNM – that PNMR and PNM will fill the void left as other coparticipants/utilities reduce their SJGS coal commitments. In fact, every time a business entity steps back from SJGS, PNM steps forward: as BHP Billiton withdraws from the San Juan Coal Mine, PNM plans to step in to own it; as California utilities relinquish SJGS coal assets, PNM plans to take on 132 MW of additional coal capacity; as Tucson Electric Power (TEP) withdraws from consideration as a minority 18% coal mine owner – and no other coparticipants fill in for their respective SJGS shares – PNM plans to be a 100% owner of the mine; and now as the City of Farmington decides not to procure 65 additional MW from SJGS Unit 4, PNMR plans to take it on.

“Each of these events is an important market signal and added all together warrant serious reflection and reconsideration of the overall picture: yet PNM keeps renewing and upping its coal commitments at a time when it could be diversifying its portfolio. We understand that these commitments are being made to keep the Restructuring Agreement intact. Although NMIPP is sympathetic to PNM’s situation, we think there is a better, more market oriented and less risky path forward.

“NMIPP joined the Stipulation in large part because of the ability that was preserved therein for signatories to contest the coal issues in this case which we think are most consequential. We have testified there should be conditions to the CCN for 132 MW of new coal procurement including (a) Commission pre-approval of the coal supply agreement, (b) retirement of SJGS Unit 1 under the same time frame and conditions as Units 2 & 3 and (c) no allowance for PNM to pick up additional new coal resources at SJGS. We have recommended all of these conditions in order to facilitate and encourage a more diversified energy portfolio that is cleaner, less risky and in the long term, more cost effective. When we filed this testimony, PNM challenged it on the grounds that I was not qualified to offer such testimony. While we may not be privy to all the complexities of the coal related issues in this case, it is uncomplicated to claim that New Mexico rate payers deserve protections from the contingent coal liabilities in this case.”

The Renewable Energy Industries Association of New Mexico (REIA) also filed a Jan. 20 notice with the commission that it is pulling out of this deal. “REIA joined the Stipulation based on its evaluation at the time that the benefits ofthe Stipulation outweighed the risks of litigation,” it said. “In consideration of REIA’s support for the Stipulation, PNM agreed to request an extension of its REC-purchase program for ‘up to 3 MW per year of new customer-owned solar distributed generation’ for three (3) years commencing in 2017.”

REIA cited as reasons for pulling out:

  • It was revealed in November 2014 that PNM understated the future cost for coal in its original modeling runs. This error demonstrates that the stipulation portfolio has an average net present value that is about $367m more than the parties were led to believe, and that there is consequently a much stronger case for the inclusion of more renewables in a new PNM portfolio.
  • PNM filed a rate application with the commission on Dec. 11, 2014, in which it takes direct aim at solar distributed generation (DG) by proposing a punitive “solar access fee” and changes to PNM’s implementation of the rules regarding net metering that are designed to bring customer demand for solar DG to a “screeching halt.”
  • PNM disclosed at a recent hearing that the Farmington Electric Utility System (FEUS) is recommending that the City of Farmington refuse ownership of 65 MW of capacity at San Juan Unit 4, contrary to PNM’s expectations based on the ongoing restructuring negotiations concerning that facility. In support of this recommendation, FEUS cited amongst other grounds “significant degradation in SJGS Unit 4 reliability performance, uncertainty and likely unfavorable economics regarding future fuel supply, uncertainty pertaining to operations and ownership structure post-2022 and other evaluated liabilities unacceptable to the City.” This revelation highlights the economic and operational uncertainties surrounding PNM’s continued reliance on coal-power from San Juan, and demonstrates that it would be premature to approve the stipulation without additional assurances that PNM seems unable or unwilling to provide, REIA said.
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.