Sierra Club: New Mexico commission delays vote on San Juan coal plant

The Sierra Club said May 27 that the New Mexico Public Regulation Commission (PRC) has postponed a final ruling on Public Service Co. of New Mexico‘s (PNM) proposal to continue burning coal at the San Juan Generating Station until the such time as the utility is able to secure final coal supply and ownership agreements.

Earlier in May, PNM filed draft, non-binding contracts with the PRC that lock the utility into burning coal at the San Juan Generating Station for the foreseeable future. PNM is also looking to fill the ownership void left by groups exiting the plant, becoming the perpetual owner of last resort, the club said.

Nellis Kennedy-Howard, Senior Representative for the Sierra Club’s Beyond Coal campaign, said: “PNM’s draft proposals will increase the risks and liabilities to New Mexico families by positioning the utility as the owner of last resort for the outdated, expensive San Juan Generating Station. PNM’s statements on their new draft agreements do nothing to address the already enormous cost increases of the plan, the plummeting support for their proposal, or resolve question over who will even own the plant after 2022. Rather than delaying this important decision any further, it’s time for the PRC to act and reject PNM’s risky plan for the San Juan Generating Station and demand that PNM create a sustainable plan to transition to clean energy that will create long-term certainty and spur economic development for the Four Corners region.”   

Earlier this year, the home city of the plant, Farmington, New Mexico, announced it would not acquire an increased stake in the plant due to reliability concerns and the costs that would be passed on to the community. The Albuquerque City Council passed a resolution on April 6 formally opposing PNM’s plans and urging the New Mexico Industrial Energy Consumers, of which the City of Albuquerque is a member, to withdraw its support.

PNM on May 14 signed an executed letter agreement with Westmoreland Coal (NasdaqGM: WLB) for the new coal supply contract for San Juan Generating Station (SJGS). The combined new coal supply and SJGS ownership restructuring agreements will save customers approximately $300 million in fuel costs over the next six years, the utility said. The company filed the agreement and other documents in response to a NMPRC order that requested comments on how the commission should proceed in light of these agreements. PNM said it feels strongly that the NMPRC has reason to approve the company’s request to add 132 MW of capacity in SJGS Unit 4, conditional upon final execution of the ownership and coal contracts by Aug. 31, 2015.

The May 14 filing included a resolution from the owners of the SJGS in support of PNM’s plans and a letter from Keith E. Alessi, Westmoreland CEO, urging the NMPRC to make a timely decision that enables Westmoreland to move forward with the transition of the mine.

PNM says approval needed to supply certainty to the process

Pat Vincent-Collawn, Chairman, President and CEO of PNM, wrote in a May 24 editorial in the Albuquerque Journal in response to a critical editorial from the Journal: “PNM is not requesting final approval of the plan while telling the New Mexico Public Regulation Commission to simply take our word that we’ll meet our obligations. The company is requesting conditional approval for a piece of the plan that would allow the process to move forward under strict guidelines, which would result in an enormous cost benefit to electric customers.

“PNM clearly established during a January hearing at the New Mexico Public Regulation Commission that the company’s plan for the power plant is the most cost-effective. It provides more environmental benefits at a lower cost than any alternative. The hearing examiner didn’t support approval of the plan because of the lack of an ownership restructuring agreement and coal supply contract.

“Last week, PNM and Westmoreland Coal Company signed a binding letter agreement that would lead to significantly lowering the cost of coal. The company has also reached a substantially final ownership restructuring agreement for the ongoing operation of the plant when the plan takes effect in 2018. The lower cost of coal, together with the benefits from ownership restructuring, would result in savings of $300 million that flow directly to customers beginning next year, further increasing the benefits of the PNM plan.

“Both agreements are contingent upon the NMPRC approving PNM’s proposal to acquire 132 megawatts of existing capacity in San Juan Unit 4, which makes total sense. You can’t have an ownership restructuring agreement without a coal-supply contract, and you can’t have a final coal-supply contract without approval for the Unit 4 capacity, which would ensure there’s a need for the coal.

“Even conditional NMPRC approval is critical to closing the deal and ensuring customers realize the tremendous savings. The New Mexico Attorney General, New Mexico Industrial Energy Consumers, and the staff of the NMPRC all strongly support granting PNM conditional approval. There is no risk to PNM customers if the NMPRC grants conditional approval to the plan. PNM has proposed that with that conditional approval, the company will have an executed ownership restructuring agreement by Aug. 31, to go along with the binding coal supply agreement. If the company doesn’t deliver, approval is rescinded. What is at risk is the potential $300 million cost savings that will benefit customers.

“PNM’s plan effectively and responsibly balances reliability, affordability, and environmental responsibility. The company would close two of the four units at San Juan, which would result in a 30 percent net reduction of PNM coal capacity. The plan would also reduce 7 different emissions, including carbon, by about 50 percent, and cut the plant’s water usage in half. Replacement power would include new solar generation, a new natural gas-fired plant, and existing emissions-free nuclear.

“Rejecting the plan would likely force the plant to close, more than doubling the initial cost impact to customers. It would force a risky, long-term bet on natural gas, which has a history of volatile prices. It would also force PNM to purchase more expensive power on the open market. Closing the plant would devastate the Four Corners economy and have a serious ripple effect throughout the state. More than 700 jobs at the plant and adjacent coal mine would be lost, along with hundreds of related jobs and tens of millions of dollars in economic impact.”

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.