PNM continues longstanding talks to buy 50% of Valencia power plant in New Mexico

PNM Resources said in its Aug. 9 quarterly Form 10-Q report that its Public Service Co. of New Mexico (PNM) subsidiary is engaged in protracted talks to buy 50% of the 158-MW Valencia natural gas-fired plant located near Belen, New Mexico.

PNM has a power purchase agreement (PPA) for all of the electric capacity and energy from Valencia through May 2028. A third-party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated.

During the term of the PPA, PNM has the option to purchase and own up to 50% of the plant or the company that controls the plant. The PPA specifies that the purchase price would be the greater of: 50% of book value reduced by related indebtedness; or 50% of fair market value. In October 2013, PNM notified the owner of Valencia that PNM may exercise the option to purchase 50% of the plant.

As provided for in the PPA, an appraisal process was initiated since the parties failed to reach agreement on fair market value within 60 days. Under the PPA, results of the appraisal process established the purchase price after which PNM was to determine in its sole discretion whether or not to exercise its option to purchase the 50% interest. The PPA also provides that the purchase price may be adjusted to reflect the period between the determination of the purchase price and the closing. The appraisal process determined the purchase price as of October 2013 to be $85 million, prior to any adjustment to reflect the period through the closing date.

Approval of the New Mexico Public Regulation Commission (NMPRC) and Federal Energy Regulatory Commission would be required, which process could take up to 15 months.

In May 2014, after evaluating its alternatives with respect to Valencia, PNM notified the owner of Valencia that PNM intended to purchase 50% of the plant, subject to certain conditions. PNM’s conditions include: agreeing on the purchase price, adjusted to reflect the period between October 2013 and the closing; approval of the NMPRC, including specified ratemaking treatment, and FERC; approval of the relevant boards of directors; receipt of other necessary approvals and consents; and other customary closing conditions.

PNM received a letter dated June 30, 2014, from the owner of Valencia suggesting that the conditions set forth in PNM’s notification raise issues under the PPA. The owner of Valencia submitted a counter-proposal to PNM in April 2015 and the parties are continuing to have periodic discussions, PNM Resources said. PNM cannot predict if it will reach agreement with the owner of Valencia, if required regulatory and other approvals will be received, or if the purchase will be completed, it added.

Also in the area of gas-fired generation, in June  2015 PNM filed an application with the NMPRC for a 187-MW gas plant to be located at the San Juan coal plant site. This resource was identified as a replacement resource in PNM’s application to retire San Juan Units 2 and 3. On Feb. 12, PNM filed a motion to withdraw its application and stated that it would file either a new application for a gas-fueled resource or a report on the status of that application. On May 18, the NMPRC issued an order granting PNM’s request to withdraw the application and closing the case.

On April 26, PNM filed an application for an 80-MW gas plant to be located at San Juan. The plant would consist of two 40-MW aeroderivative units. The projected cost of the plant is $86.8 million, which is included in PNM’s current construction expenditure forecast. PNM has requested a final order from the NMPRC by Dec. 1, 2016, to facilitate a June 2018 in-service date. A motion to dismiss the case was filed by an intervenor on June 22. PNM responded to the motion on July 19. A public hearing is scheduled for Nov. 7. PNM cannot predict the outcome of this proceeding.

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.