New Mexico commission okays PNM deal covering two coal unit retirements

PNM Resources (NYSE: PNM) subsidiary Public Service Co. of New Mexico on Dec. 16 received approval from the New Mexico Public Regulation Commission (NMPRC) of an agreement that would allow for the retirement of two units at the coal-fired San Juan Generating Station (SJGS).

The NMPRC voted 4-1 to approve the NMPRC General Counsel’s proposed order for approval of the hearing examiner’s Nov. 16 recommended decision.

“We are very pleased to have Commission approval of the agreement,” said Pat Vincent-Collawn, PNM Resources’ chairman, president and CEO. “The record for this case over the last two years has demonstrated our continued commitment to customers to provide reliable, affordable and environmentally sustainable power. This plan not only represents the least-cost alternative for compliance with federal environmental regulations, but also protects the economy of the Four Corners region and the state.”

The approved agreement between PNM and various parties will result in the closure of two of the four coal-fired units at SJGS by Dec. 31, 2017, the installation of emissions control technology on the remaining units and other environmental and customer benefits to address compliance with regional haze regulations under the Clean Air Act. In addition, the agreement will aid New Mexico’s ability to comply with the U.S. Environmental Protection Agency’s Clean Power Plan, which imposes limits on carbon emissions and was published in final form by EPA on Oct. 23.

Signatories to the Aug. 13 agreement, which was the subject of the hearing examiner’s recommended decision, are PNM, the Utility Division Staff of the NMPRC, the New Mexico Attorney General, Western Resource Advocates, the New Mexico Coalition for Clean Affordable Energy, New Mexico Industrial Energy Consumers, New Mexico Independent Power Producers and Interwest Energy Alliance.

“It’s important to remember that we were originally faced with a costly federal implementation plan to reduce regional haze with equipment on all four San Juan units, but with the leadership of Governor Susana Martinez and strong community support including support from the Navajo Nation, we were able to work with the EPA and the state to find a lower-cost plan for customers that provides even broader environmental benefits,” added Vincent-Collawn. “The agreement approved today is the result of substantial work done by many parties. I appreciate the collaborative effort that brought forth the best solution to a complex problem, along with the tenacity of those parties to continue to work on this solution during the course of the two years that it took to gain approval.”

The closure of SJGS Units 2 and 3 by Dec. 31, 2017 and the installation of the Selective Non-Catalytic Reduction (SNCR) equipment for NOx control on the remaining two units are expected to reduce water use and seven different emissions (including carbon) at SJGS by approximately 50%.

New coal supply deal will lead to savings

Approval of the plan also allows for significant customer savings to begin when the new coal contract with Westmoreland Coal takes effect and Federal Energy Regulatory Commission approval is received. Colorado-based Westmoreland Coal is buying the San Juan mining operations, located next to the San Juan power plant, from international miner BHP Billiton.

Approval of the agreement allows for:

  • Retirement of SJGS Units 2 and 3 and recovery of and a return on 50% (currently estimated to be ~$127.5 million) of the undepreciated value of the assets at Dec. 31, 2017. 
  • A Certificate of Public Convenience and Necessity (CCN) for 132 MW in SJGS Unit 4 with an initial book value of zero plus additional capital investment (including SNCR equipment), allowing for the continued operation of Units 1 and 4 and implementation of the beneficial new coal supply agreement.
  • A CCN for 134 MW of the Palo Verde Nuclear Generating Station (PVNGS) Unit 3 to be used as replacement power with an initial rate base value based on the book value as of Dec. 31, 2017 (currently estimated to be ~$1,118/kW).
  • Accelerated recovery of SNCRs on SJGS Units 1 and 4 so they are fully recovered by July 1, 2022.
  • The acquisition of 65 MW of SJGS Unit 4 as excluded utility plant by PNM.

Beginning in January 2020, PNM will acquire and retire one megawatt-hour of Emission Rate Credits or Allowances or Renewable Energy Certificates for every megawatt-hour produced by 197 MW of PNM’s share of SJGS Units 1 and 4. This will also help New Mexico achieve compliance with the EPA’s Clean Power Plan. The associated costs cannot exceed $7 million per year and will be recovered in rates.

PNM will make a filing in 2018 to demonstrate the ongoing economic viability of SJGS beyond 2022 through an NMPRC case that all parties to the agreement will support being decided within six months. This time frame allows PNM and Westmoreland Coal to plan for coal mining operations beyond the 2022 end of the new coal contract.

PNM will also contribute an additional $250,000 this year to the company’s Good Neighbor Fund, which helps low income customers cover electric bills in emergency financial situations. This is part of PNM’s ongoing commitment to supporting community organizations and providing assistance to the least fortunate in New Mexico.

PNM Resources is an energy holding company based in Albuquerque, N.M., with 2014 consolidated operating revenues of $1.4 billion. Through its regulated utilities, Public Service Co. of New Mexico and Texas-New Mexico Power Co. (TNMP), PNM Resources has approximately 2,707 MW of generation capacity and provides electricity to more than 753,000 homes and businesses in New Mexico and Texas.

The retirement of San Juan Units 2 and 3 will eliminate 836 MW of coal-fired generation, which is 50% of the capacity at San Juan. PNM’s share of the coal-fired capacity at the plant will be reduced from 783 MW to 562 MW.

Opinions aired on both sides of the issues

The commission noted in a Dec. 16 statement that this is a case that has been in the works at the NMPRC for nearly two years. The Dec. 16 commission decision came after final arguments from the parties earlier that day.

  • Santa Fe-based renewable energy attorney Bruce Throne, an opponent to this case, stated that the burden of proof regarding the feasibility of options for renewable resources associated with this proposal rests on the shoulders of the utility, however, that matter has never been satisfactorily rebutted, and spoke of protecting the public interest.
  • Another opponent, Mariel Nanasi of New Energy Economy (NEE), spoke of a clean energy future including wind and solar energy, and spoke of the lower costs of renewable when compared to coal and nuclear power.
  • On the side of the proponents, PNM Attorney Rick Alvidrez stated that a successful settlement to this case was presented, and all of the parties who signed onto this agreement are united. “What we are talking about here is shutting down half of San Juan, and that is not an insignificant reduction,” he stated. “Long term, the savings to customers will be $290 million. This is the most economical outcome for New Mexico consumers, and all agree, with the exception of NEE’s expert.”
  • NMPRC Staff Attorney Patrick Lopez stated that a solvent utility protects ratepayers, and that the modified stipulation agreed upon starts on a path to renewable energy.
  • Cholla Khoury, of the New Mexico Attorney General’s Office, stated that New Mexico is a poor state with a fragile economy. “The modified stipulation provides important benefits,” she stated. “It reduces the rate impact on ratepayers throughout the state while transitioning away from coal.”

At the conclusion of oral arguments, NMPRC Office of General Counsel Attorney Rick Blumenfeld provided the commission with a detailed review of the history of the case. Vice-Chair Lynda Lovejoy moved to adopt the final order as presented to the commission, and that motion was seconded by Commissioner Patrick Lyons. The commission ultimately elected to adopt the final order, with a vote of 4-1, with Commissioner Valerie Espinoza placing the sole dissenting vote.

“The modified stipulation we approved today is a vast improvement over what was originally proposed,” stated Chairwoman Karen Montoya. “It protects the public interest and reduces environmental pollution while minimizing economic impacts and keeping utility bills as low as possible.”

“The modified stipulation has broad support geographically from every area of PNM’s service territory,” stated Vice-Chair Lynda Lovejoy, who represents District 4, where the San Juan plant is located. “Although other parties did not sign the modified stipulation, they also indicated they would not oppose it. These parties include the Water Authority and the counties of Bernalillo and Santa Fe.

“I disagree with the PRC Attorneys statements here today about the fairness to the ratepayers. The result of this decision is going to be borne by the ratepayers, and there is no assurance that this will be the best deal for ratepayers. We need to protect the ratepayers,” stated Commissioner Valerie Espinoza of Santa Fe. “I don’t believe anyone is acting on behalf of the public. My decision is based on balancing all of the interests of the public. Why more coal? Ratepayers are the ones that will be hit twice because this case is separate from the upcoming rate case. My main concerns continue to be the replacement power options. I cannot support the nuclear power replacement option as it is structured. I believe that the Palo Verde Unit 3 option should have been structured as a purchase power agreement with its ownership and the clean-up risks and costs continuing to be the sole responsibility of PNM’s shareholders, not the ratepayers.”

“This is a very detailed stipulation that benefits all New Mexicans, the environment, the ratepayer, and keeps the lights on at a reasonable cost while maintaining reliable electricity to the customer,” stated Commissioner Patrick Lyons, who represents the eastern half of the state.

The new coal supply agreement with Westmoreland produces $340 million in savings through June 2022, as stated in the hearing examiner’s recommendation. The modified stipulation also produces an additional $41 million in savings, comprised of $38 million in savings resulting from the reduction of the rate base value of power obtained from the Palo Verde nuclear power plant in Arizona and $3 million in savings resulting from the shortened depreciation period for the costs associated with the pollution controls project proscribed for the remaining units at San Juan.

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.