Public Service of New Mexico argues for buy of part of San Juan coal plant

Following up on days of contentious public hearings, Public Service Co. of New Mexico filed on Feb. 16 at the state’s Public Regulation Commission a post-hearing brief that pitches for its its plan to buy a new stake in the San Juan coal plant.

Two units at the San Juan Generating Station (SJGS) are due to be retired by the end of 2017 under a clean-air deal, and PNM wants to help make up for that loss by purchasing part of the plant’s remaining capacity. That has provoked the ire of environmental groups and other parties. PNM has worked out a stipulated agreement with some of the parties to the case, including the state Attorney General and Western Resource Advocates, that includes:

  • authorizing abandonment of SJGS Units 2 and 3 effective December 31, 2017;
  • providing for a reasonable sharing of the costs associated with the undepreciated investment in SJGS Units 2 and 3 between customers and shareholders;
  • granting a certificate of public convenience and necessity (CCN) for an additional 132 MW of capacity in SJGS Unit 4 at a reasonable value for ratemaking purposes to mitigate the undepreciated investment in SJGS Unit 3 in order to provide restructured ownership interests that will facilitate implementation of the clean-air agreement; and
  • granting a CCN to include 134 MW of Palo Verde Unit 3 nuclear capacity in rate base at a valuation that provides net benefits to customers and properly balances their interests with the interests of shareholders.

Shutting of the two units is not the issue here

Said PNM in the Feb. 16 brief: “The abandonment and CCNs section of the Stipulation is comprised of paragraphs 13- 17. Paragraph 13 provides that SJGS Units 2 and 3 shall be abandoned effective December 31, 2017, and permanently retired from providing service. There is no opposition in this case to this provision. There is general consensus that this provision provides substantial benefits for number of reasons. Abandonment of SJGS Units 2 and 3 saves customers money by avoiding the necessity of having to put costly [selective catalytic reduction] technology on all four units of SJGS in compliance with the [Federal Implementation Plan] and, instead placing much less expensive [selective non-catalytic reduction] on SJGS Units 1 and 4 in compliance with the Revised [State Implementation Plan]. And, even as a less costly measure to comply with EPA’s Regional Haze Rule requirements, it provides far greater environmental benefits than does the FIP.

“With this agreement, it then becomes necessary to identify appropriate replacement power resources in order to demonstrate that the future public convenience and necessity allows the abandonment of SJGS Units 2 and 3, as will be discussed in more detail later in this Brief. Paragraph 14 addresses the issue of replacement power by providing that a CCN should be granted for an additional 132 MW of capacity in SJGS Unit 4, effective January 1, 2018, at an initial value for ratemaking purposes of $26 million, which is accomplished by reducing the value of one of the units it will be replacing, SJGS Unit 3, by an equal amount. This provision is beneficial in that it provides partial replacement base load capacity to offset the loss of base load capacity from the units being abandoned and facilitates the San Juan ownership restructuring necessary for the unit retirements and the continued operation of Units 1 and 4. It is an existing resource which has provided reliable, low cost generation for decades. As an existing resource, it avoids construction and permitting risks for new plants. Even though additional costs such as the prorated costs associated with installation of SNCR and balanced draft increase the rate base value to $358/kw, it is unlikely that any other resource could be obtained at that price. Further, the acquisition of the 132 MW of additional capacity in SJGS Unit 4 preserves the availability of SJGS Units 1 and 4 as low cost, reliable generation for customers by facilitating the San Juan ownership restructuring necessary in order to comply with the Revised SIP.”

PNM later added: “No party opposed the abandonment of SJGS Units 2 and 3. Because the energy and capacity from those two units are needed to meet customer demand, replacement power must be identified and in service by January 1, 2018. PNM has already received a CCN for 40 MW of utility-owned solar capacity in NMPRC Case No. 14-00158-UT to serve as a cost-effective system resource. This capacity is needed regardless of the abandonment of SJGS Units 2 and 3, but will nonetheless provide replacement power. PNM’s resource modeling has identified a 177 MW gas turbine as another future power source to replace the abandoned capacity. However, while that plant has been identified as part of a cost-effective portfolio of replacement resources, it is not at issue in this case since PNM will file an application for a CCN for that resource once plans are firmed up.”

PNM also noted: “The public interest is further supported by the fact that San Juan Unit 4 has provided reliable and cost-effective energy to PNM customers for more than three decades. For the period from 2008 through 2012, San Juan had an average availability factor of 87.47%. While variability in the quality of delivered coal has impacted overall San Juan performance in 2013 and 2014, this is a transitory circumstance due to a particularly narrow coal seam in the San Juan underground coal mine. Following discussions with San Juan Coal Company, coal quality and variability have improved.”

Talks ongoing about San Juan coal mine ownership

Incidentally, PNM on Feb. 16 filed with the commission a separate, brief report on the status of talks for future coal supply to San Juan. “On February 12, 2015, the Coordination Committee of the San Juan Generating Station unanimously authorized the extension of the deadline to May 1, 2015, under Amendment No. 6 of the Underground Coal Sales Agreement, to reach agreement on a letter of intent (‘LOI’) for the purchase of the San Juan Coal Company underground coal mine. The authorization by the Coordination Committee for the extension of the LOI deadline is now understood to contemplate the execution of a purchase agreement among San Juan Coal Company, San Juan Transportation Company, BHP Billiton New Mexico Coal Company, Inc. and a third-party.”

BHP Billiton New Mexico is a unit of international miner BHP Billiton, which for years has owned the captive coal mining operations for this power plant.

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
  • 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 for NOx control on Units 1 and 4.

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.