PNM argues for approval of San Juan coal plant restructuring deal

Public Service Co. of New Mexico (PNM) filed with the New Mexico Public Regulation Commission a Dec. 4 rebuttal to critics of a Nov. 16 certification proposal in the case reviewing the partial retirement of the San Juan coal plant.

The protests were filed by New Energy Economy (NEE), Western Resource Advocates (WRA) and the Coalition for Clean Affordable Energy (CCAE).

Said PNM’s Dec. 4 rebuttal: “The record establishes that the November Certification should be approved as proposed by the Hearing Examiner. The November Certification proposes approval, with very limited modification, of the Modified Stipulation. The Modified Stipulation calls for, among other things, the abandonment of San Juan Units 2 and 3 and the approval of the Stipulation Portfolio, which has repeatedly been demonstrated to be the most cost-effective for New Mexico customers under a variety of changing circumstances during the nearly two-year pendency of this proceeding.”

PNM said the more significant cost savings to customers that will result from the approval of the certification include:

  • Savings to customers associated with PNM’s write down of $128.7 million of its undepreciated investment in San Juan Units 2 and 3.
  • Savings to customers associated with the inclusion of an additional 132 MW in generation capacity of San Juan Unit 4 in PNM’s rate base at zero initial cost.
  • Savings to customers associated with including 134 MW of the Palo Verde nuclear Unit 3 in PNM’s rate base at an estimated book value of $1,118 per kW, which represents a significant savings compared to its market value of $2,500 per kW, and which has been consistently demonstrated to be an integral part of the most cost-effective replacement portfolio.
  • Savings to customers in the estimated amount of $340.5 million in San Juan fuel costs for the period from January 1, 2016, through June 30, 2022, with estimated savings in the amount of $46.5 million in 2016 alone.
  • Savings of over $100 million on customer bills in 2018 compared to a four-unit shutdown (which is all the coal units at San Juan), which is the most likely alternative to the Modified Stipulation.

PNM said there are also significant non-monetary benefits associated with the approval of the certification which include:

  • Significant additional environmental benefits (in the form of a reduction by approximately fifty percent of San Juan air emissions, waste generation and water consumption) compared to the original Regional Haze compliance alternative for San Juan promulgated by the EPA’s federal implementation plan (FIP), which required the costly retrofit of SCR systems for NOX control on all four units.
  • Significant environmental benefits in the required purchase of renewable energy credits (RECs) or other similar instruments under the EPA’s Clean Power Plan rule which will help promote the development of additional renewable energy resources.
  • Mitigation of adverse impacts to the economy of the Four Corners region.

WRA and CCAE support the approval of the Modified Stipulation, but take limited exception to the conclusion in the certification that plant co-owners Anaheim and M-S-R are not “persons” as defined under state law and that, therefore, no variances from commission rules are required to effectuate the Modified Stipulation. WRA and CCAE have also identified certain appropriate corrections to the certification. NEE is the lone party opposing the approval of the Modified Stipulation that filed exceptions to the certification.

The exceptions filed by NEE in this proceeding confirm that it wishes to accomplish its goal of reducing coal-fired and nuclear generation regardless of costs to customers, disruption to electric system operations and reliability, and negative impacts to the economy of the Four Corners region, said PNM.

The final executed San Juan restructuring agreements and coal agreements with new coal supplier Westmoreland Coal provide certainty for San Juan operations through the end of a joint operating agreement for the plant. There is a 2018 review built in that generally coincides with the notice and negotiation period for any proposed extension of the new coal supply agreement and the notice of the San Juan owners regarding their intentions beyond June 30, 2022.

Therefore, the parties and the commission will have ample opportunity to address the continued desirability of San Juan as a generation resource in 2018, PNM noted. At that time, the commission and the parties will have firm information concerning post-2022 coal costs, information regarding the implementation of the EPA’s Clean Power Plan in New Mexico, the interest of the remaining San Juan participants in continuing to participate in the plant post-2022, and the results of an RFP for other resource options.

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.

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.