Westmoreland Coal to take over San Juan coal mine as part of broad restructuring

PNM Resources‘ (NYSE: PNM) Public Service Co. of New Mexico (PNM) subsidiary will file on May 1 with the New Mexico Public Regulation Commission (NMPRC) substantially final coal supply and participant restructuring agreements for the San Juan Generating Station (SJGS).

The agreements will be filed as part of PNM’s ongoing regulatory proceedings seeking NMPRC approval of the SJGS Plan settlement agreement filed in October 2014, said PNM in a May 1 statement. Approval of the settlement agreement is an important step in implementing a revised state plan that benefits customers and complies with federal visibility regulations under the Clean Air Act.

“Securing these two agreements provides clear evidence of our ability to execute our plan for the San Juan Generating Station that is in the best interests of our customers, the New Mexico economy and environment,” said Pat Vincent-Collawn, PNM Resources’ chairman, president and CEO. “The savings under this new coal supply agreement further demonstrate that our plan is the lowest cost alternative for customers, and we hope that in light of these developments, the NMPRC will approve the settlement agreement as originally filed, securing the longevity of the San Juan Generating Station.”

The new coal supply agreement states that the intended new coal mine owner, U.S.-based Westmoreland Coal, will take over operations at the beginning of 2016. The current agreement with the existing coal mine owner, international mining company BHP Billiton, would have terminated at the end of 2017. The earlier transaction date allows PNM customers to more quickly benefit from fuel savings of approximately 15-20% in 2016 and 2017. The new coal supply agreement expires in 2022, but the power plant owners can extend the agreement beyond 2022, to coincide with the SJGS owners’ plans for operation of the plant after 2022. The new coal supply agreement and the agreement in principle for Westmoreland to purchase the San Juan Mine, which is adjacent to the power plant, will not be final or binding until all parties have secured internal approvals.

“Westmoreland is delighted to establish a new relationship with the San Juan Generating Station,” said Keith E. Alessi, Westmoreland Coal’s CEO. “We look forward to working with the ownership of San Juan and BHP Billiton in assuring a smooth transition on January 1, 2016. The San Juan mine is a well-run operation with an excellent workforce that fits extremely well with our mine mouth, contracted business model. We look forward to welcoming the International Union of Operating Engineers workforce along with all San Juan Coal Company employees into the Westmoreland family and are certain that they will embrace our culture of safe production.”

Based in Colorado, Westmoreland Coal (NASDAQ: WLB) is the oldest independent coal company in the United States. Westmoreland’s coal operations include sub-bituminous and lignite surface coal mining in the Western United States and Canada, an underground bituminous coal mine in Ohio, a char production facility, and a 50% interest in an activated carbon plant. Westmoreland also owns the general partner of and a majority interest in Westmoreland Resource Partners LP (formerly Oxford Resource Partners LP), a publicly-traded coal master limited partnership with six mining complexes in Ohio.

PNM and the other owners of the plant will now work to secure all final approvals from their respective governing bodies.

Agreement also worked out for revamped San Juan power plant ownership

A SJGS participant restructuring agreement will also be filed May 1 with the NMPRC, identifying the ongoing ownership of the plant effective Jan. 1, 2018. The agreement identifies PNMR Development and Management Co., an unregulated subsidiary of PNM Resources, as the owner of 65 MW of SJGS Unit 4. SJGS is currently jointly owned by PNM and eight other entities. This agreement allows for the exit of certain participants while, combined with the shutdown of SJGS Units 2 and 3 under the revised state plan, defines the terms of ownership of the remaining capacity among the remaining participants.

The agreement will result in the retirement of Units 2 and 3 at San Juan, significantly reducing the use of coal and slashing seven different emissions, including carbon, by 50%, and also cutting water use at the plant by about half.

The filing of the participant restructuring agreement addresses a Hearing Examiner’s concerns in rejecting PNM’s prior settlement agreement.

Related to the ownership restructuring agreement are other restructuring agreements, including those for mine reclamation and decommissioning. PNM and the other SJGS owners plan to have final execution of all restructuring agreements by Aug. 31, 2015.

The revised state plan for SJGS was proposed in early 2013 by PNM, the New Mexico Environment Department and representatives from the U.S. Environmental Protection Agency with the leadership of N.M. Governor Susana Martinez and Navajo Nation President Ben Shelly as a cost-effective approach to comply with federal haze regulations and compliance with new carbon regulations proposed by the EPA. The New Mexico Environmental Improvement Board unanimously approved the plan and EPA approval of the plan became effective November 2014.

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.