A ruling is imminent from a federal district court that would impact the operations of the San Juan coal mine, which supplies the adjacent San Juan Generating Station (SJGS) in New Mexico.
Public Service Co. of New Mexico is a part owner and the operator of the power plant. Its parent, PNM Resources (NYSE: PNM), reported in its Feb. 27 annual Form 10-K filing that in February 2013, WildEarth Guardians (WEG) filed a petition for review in the U.S. District Court for the District of Colorado against the U.S. Office of Surface Mining (OSM), That petition challenged federal administrative decisions affecting seven different mines in four states issued at various times from 2007 through 2012.
WEG is challenging several unrelated mining plan modification approvals, which were each separately approved by OSM. Of the fifteen claims for relief, two concern the San Juan mine, controlled by San Juan Coal Co. (SJCC). WEG’s allegations concerning the San Juan mine arise from OSM administrative actions in 2008. WEG alleges various National Environmental Policy Act (NEPA) violations against OSM, including, but not limited to, OSM’s alleged failure to: provide requisite public notice and participation and analyze certain environmental impacts; and its alleged reliance on outdated and insufficient documents.
WEG’s petition seeks various forms of relief, including a finding that the federal defendants violated NEPA by approving the mine plans, voiding, reversing, and remanding the various mining modification approvals, enjoining the federal defendants from re-issuing the mining plan approvals for the mines until compliance with NEPA has been demonstrated, and enjoining operations at the seven mines.
San Juan Coal intervened in this matter. The court granted San Juan Coal’s motion to sever its claims from the lawsuit and transfer venue to the U.S. District Court for the District of New Mexico. Legal briefing is complete and the matter is ready for a ruling from the court. “If WEG ultimately obtains the relief it has requested, such a ruling could require significant expenditures to reconfigure operations at the San Juan mine, impact the production of coal, and impact the economic viability of the San Juan mine and SJGS,” said the Form 10-K. “PNM cannot currently predict the outcome of this matter or the range of its potential impact.”
Complex series of negotiations still going on for the San Juan power plant
Notable is that Public Service Co. of New Mexico is in the middle of a contentious proceeding at the New Mexico Public Regulation Commission to allow, under a clean-air mandate, the end-of-2017 shutdown of SJGS Units 2 and 3. That would leave Units 1 and 4 in operation, with selective non-catalytic reduction (SNCR) added to them to reduce NOx emission, in place of more expensive selective catalytic reduction (SCR) systems. Myriad issues are at play in that case, including the fact that the city of Farmington, N.M., has recently backed out of a commitment to buy a higher stake in the plant that will be left in operation after this shutdown.
Said the Form 10-K about power plant restructuring issues: “SJGS is jointly owned by PNM and eight other entities, including three participants that operate in the State of California. Furthermore, each participant does not have the same ownership interest in each unit. The [agreement] that governs the operation of SJGS expires on July 1, 2022 and the contract with [San Juan Coal] to supply the coal requirements of the plant expires on December 31, 2017. The California participants have indicated that, under California law, they may be prohibited from making significant capital improvements to SJGS. The California participants have stated they would be unable to fully fund the construction of either SCRs or SNCRs at SJGS and have expressed the intent to exit their ownership in SJGS no later than the expiration of the current [operating agreement]. One other participant also expressed a similar intent to exit ownership in the plant. The participants intending to exit ownership in SJGS currently own 50.0% of SJGS Unit 3 and 38.8% of SJGS Unit 4. PNM currently owns 50.0% of SJGS Unit 3 and 38.5% of SJGS Unit 4.”
The Form 10-K later added: “On January 7, 2015, the City of Farmington, New Mexico, which has an ownership interest in Unit 4, notified the other participants that it will not acquire additional MWs in Unit 4, leaving 65 MWs in that unit unsubscribed. PNM has indicated that it will not acquire any of the unsubscribed MWs. However, a scenario is being evaluated in which PNMR Development would acquire the 65 MWs. The City of Farmington’s action was taken under the Fuel and Capital Funding Agreement and has the impact of negating certain provisions of that agreement, including the payment arrangement related to SNCRs and PNM’s acquisition of the exiting participants’ coal inventory, and reinstating the voting and capital improvement cost allocations under the current [operating agreement]. Accordingly, on February 3, 2015, PNM informed the participants in the Fuel and Capital Funding Agreement that the agreement would terminate by its terms no later than February 6, 2015. The City of Farmington and the other continuing participants in SJGS have indicated that they remain committed to on-going ownership in SJGS and mediated discussions regarding remaining issues have continued, including matters that were addressed in the Fuel and Capital Funding Agreement.”
San Juan is a four-unit, 1,683-MW (net) station 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, to be shut by end of 2017
- Unit 3 – 496 MW, on line in 1979, to be shut by end of 2017
- Unit 4 – 507 MW, on line in 1982