PNM seeks rate hike that will in part cover retirement of two San Juan coal units

PNM Resources (NYSE: PNM) subsidiary Public Service Co. of New Mexico (PNM) on Dec. 7 filed with the New Mexico Public Regulation Commission (NMPRC) its request for an increase in electric rates of $99 million that, if approved, would take effect Jan. 1, 2018.

The average system bill impact from this increase would be 11.2%.

“This rate filing represents important changes that will transform the generation portfolio that serves our New Mexico customers as we use carbon-free nuclear energy to replace two coal-fired units that will be shut down,” said Pat Vincent-Collawn, PNM Resources chairman, president, and CEO. “We know that this change comes at a price, but we also know that it is important to our customers, and to all of us, to have reliable, affordable and sustainable energy.” 

The rate request reflects the implementation of the San Juan Generating Station (SJGS) plan that was broadly supported by the intervenors in a case approved by the NMPRC in December 2015. This plan paves the way for PNM customers to receive power from a more sustainable generation resource portfolio by approving the use of PNM’s interest in the Palo Verde Nuclear Generating Station Unit 3 to serve retail customers following the shutdown of the coal-fired SJGS Units 2 and 3.

In addition to the SJGS plan, this rate filing includes other environmental improvements to generation resources, normal capital expenditures that ensure reliable service for customers and adjusts for the lower sales due to the company’s successful energy efficiency programs. In the rate filing, PNM also proposes changes to rate design to better align electric rates with the actual costs to serve customers and encourage continued energy efficiency while proposing a rate mechanism that eliminates the disincentives associated with energy efficiency and load management programs.

Rate case supporting testimony about the power plant aspects of this rate hike came from Chris M. Olson, Vice President, Generation, for PNM.

Olson noted that PNM has received approvals from the commission to add an additional 132 MW of San Juan Unit 4 to the rate case as well as 134 MW of Palo Verde Unit 3 which represents PNM’s 10.2% interest in that unit. In the same case, PNM also received approval for the retirement of San Juan Units 2 and 3 at the end of 2017. The 134 MW interest in Palo Verde Unit 3 is an existing PNM-owned resource that will become a jurisdictional generation resource in 2018. Palo Verde Unit 3 will provide necessary baseload capacity to help offset the loss of base load capacity due to the retirement of San Juan Units 2 and 3. Palo Verde Unit 3 has proven to be a very reliable, cost-effective generation resource with a five year average Equivalent Availability Factor (EAF) of 90.8%, Olsno wrote.

San Juan Unit 4 is the newest San Juan unit and has the highest net capacity of all of the San Juan units. It has provided reliable and cost-effective energy to PNM customers for almost three decades. Unit 4 has been a solid performing unit with an average EAF of 80.29% for the past five years. The addition of the 132 MW from Unit 4 was approved by the NMPRC as part of the needed replacement for the retired capacity from San Juan Units 2 and 3 and will help assure continued necessary baseload and load following supply for PNM’ s customers. 

San Juan is a low-cost, coal-fired power plant that PNM depends on as a baseload resource and for load following. It presently consists of four units and is located near Waterflow, New Mexico. San Juan currently produces approximately 43% of the energy used annually to supply PNM’s customers’ electricity needs. Even with the planned retirement of San Juan Units 2 and 3 at the end of 2017, San Juan will continue to be an important base load generation resource for PNM’ s customers by providing an estimated 30% of their energy needs, Olson said. To maintain needed reliability for the remaining period of use for Units 2 and 3 and the longer term use of Units 1 and 4, PNM must replace worn or failed system components, Olson said.

Arizona Public Service (APS) operates Four Comers, which is located near Fruitland, New Mexico, and formerly consisted of five coal-fired units. Four Comers Units 1-3 have been retired for compliance with the EPA’s Regional Haze Rule. PNM does not own any interest in the retired units. PNM owns a 13% share of Four Comers Units 4 and 5, representing 200 MW, which it acquired in 1969 and 1970, respectively.

The owners of Four Comers are implementing a necessary environmental upgrade, which is installation of NOx-reducing selective catalytic reduction (SCR) systems on the remaining operating Units 4 and 5. In December 2013, APS notified EPA that the Four Corners owners selected a haze compliance option that required the permanent closure of Units 1-3 by January 2014, and installation of SCR post-combustion NOx controls on both Units 4 and 5 by July 31, 2018.

Olson reported that SCR technology will be completed on Four Corners Unit 5 by Dec. 19, 2017, and on Unit 4 by April 24, 2018. This schedule meets the implementation due dates set by the EPA of March 31, 2018, for Unit 5 and July 31, 2018, for Unit 4. The installation of SCR was approved by the current Four Comers owners which are APS, PNM, Salt River Agricultural Improvement and Power District and Tucson Electric Power. Southern California Edison (SCE) decided to exit Four Comers and APS acquired SCE’s 48% interest in Units 4 and 5 in December 2013. El Paso Electric (EPE) also decided to exit Four Comers. APS acquired EPE’s 7% interest in Units 4 and 5 on July 6, 2016. Because both SCE and EPE were both exiting before the time when the SCR installation would occur, they did not have a vote on the SCR project.

As a 13% owner of Four Comers Units 4 and 5, PNM’s share of the SCR project costs is approximately $90.1 million including AFUDC. Due to the size and complexity of the SCR project, APS engaged AECOM/URS as the EPC contractor and Burns & McDonnell as the Owner’s Engineer.

PNM Resources is an energy holding company based in Albuquerque, N.M., with 2015 consolidated operating revenues of $1.4 billion. Through its regulated utilities, PNM and TNMP, PNM Resources has approximately 2,787 MW of generation capacity and provides electricity to more than 760,000 homes and businesses in New Mexico and Texas.

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.