Utilities Seek to Extend Last Gasps From Arizona, New Mexico Coal Plants

Written by Abigail Sawyer of California Energy Markets

Interested parties are doubling down on efforts to extend the lives of two aging coal plants scheduled for decommissioning in northwestern New Mexico and northern Arizona.

A lawsuit filed in Arizona seeks to preserve the market for power generated by the Navajo Generating Station, scheduled to close in December 2019, in hopes that a buyer will come forward. Meanwhile, Public Service Company of New Mexico, the state’s largest utility, plans to repair—rather than shut down—a unit damaged during an explosion in March at its San Juan Generating Station, which is scheduled for closure in 2022. The move prompted a joint petition to regulators from activists who do not want to see repair costs passed on to ratepayers.

Amid reports of a possible buyer for the 2,250 MW Navajo Generating Station, located on the Navajo reservation near Page, Arizona, the Hopi Tribe; United Mine Workers of America of Quantico, Virginia; and Peabody Western Coal Co. of St. Louis, Missouri, filed a complaint this week to compel the Central Arizona Water Conservation District, NGS’ biggest customer, to continue buying power from the coal plant beyond its December 2019 closure date if a buyer could be found.

The water district operates the 336-mile Central Arizona Project, which diverts water from the Colorado River in the north through rural Arizona to the population centers of Tucson and Phoenix in the south. Construction of the project was financed by the U.S. Department of the Interior’s Bureau of Reclamation, and as part of an agreement to pay back $1.65 billion of the debt, CAP has been bound to purchase power from NGS to pump its 1.5 million acre-feet of water each year. The bureau owns 24.3 percent of NGS and is the only partner not resisting the plant’s retirement amid falling prices for alternative energy sources including natural gas and renewables.

According to the complaint, filed May 1 in the U.S. District Court of Phoenix, “An interested buyer that is willing and able to run NGS after 2019 has come forward and has nearly completed its diligence process.” The suit maintains CAWCD’s continued relationship with NGS is critical to securing a buyer willing to operate the plant beyond 2019, and that “Five other potential buyers are ready to step forward if that interested buyer decides not to acquire the non-federal NGS ownership interests.”

Salt River Project, Arizona’s second-largest utility and NGS’ largest shareholder at 42.9 percent, operates the plant. In an April 23 letter to DOI Associate Deputy Secretary James Cason, then-SRP Deputy Manager Mike Hummel (now general manager and CEO) wrote that the decision to close NGS was made “after it became clear that current and forecasted low natural gas prices had made coal generation at NGS uneconomical” and that “continued low gas prices over the past 15 months support that conclusion.”

Hummel states in the letter that “NGS owners have been and continue to be open to potential offers from buyers who may want to own and operate NGS beyond 2019.”

Emails obtained by the Institute for Energy Economics and Financial Analysis and shared with Bloomberg Environment last week reportedly named Avenue Capital Group of New York and Deerfield, Illinois-based Middle River Power as interested parties and indicated the companies sought to discuss power-purchase agreements with CAP. A CAP spokesperson verified the authenticity of the emails, according to Bloomberg. “At this time no potential buyers have notified or entered into negotiations with the NGS owners to purchase the plant. We do not have indications of any interest levels,” Jeff Lane of SRP media relations said in a statement May 3.

SRP says the likelihood of avoiding at least a temporary shutdown at NGS is waning. “Based on our past experience negotiating previous lease agreements and coal contracts, and with the need to comply with [regulatory] review requirements, we believe that any offer to buy the plant beyond mid-May of this year will face significant challenges in executing the agreements and meeting the requirements by [the shutdown date of] Dec. 22, 2019,” Hummel said.

Further east, at the San Juan Generating Station, also on the Navajo reservation and located 15 miles northwest of Farmington, New Mexico, a fire in a coal silo and a subsequent explosion at Unit 1 have prompted calls for PNM to decommission the damaged unit now rather than wait for the plant’s scheduled closure at the end of the current coal-supply agreement on June 30, 2022.

PNM is the plant’s largest shareholder, with 46 percent. The remainder is jointly owned by nine California publicly owned utilities. Originally an 1,848 MW plant, SJGS was operating at around half capacity before the explosion since closing Units 2 and 3 in December.

PNM plans to fix the damaged unit, and expects the as-yet-undisclosed repair costs will be covered by insurance without affecting ratepayers. A joint petition filed before the New Mexico Public Regulation Commission on April 12 by nine stakeholders, led by New Energy Economy and including Native American, Latino and environmental and social-justice organizations, calls for the commission to investigate the accident and require a cost-benefit analysis using economic modeling, risk analysis, and an alternative-resource evaluation to determine the advisability of repairing Unit 1.

PNM’s 2017 integrated resource plan makes clear its goal of eliminating coal completely by 2031 and its plan to replace it with solar, natural gas, and possibly energy storage. The IRP claims retiring “SJGS in 2022 would provide long-term cost savings for PNM’s customers,” enabling movement from “fixed costs and baseload operation associated with coal plants to resources that better match varying loads and are better equipped to work with renewable energy.”

Petitioners wary of PNM’s plan for Unit 1 state that “continuing capital expenditures are critical to PNM’s business model . . . as made repeatedly clear to investors, and acknowledged by this commission . . . investing in ‘Core Capital’ leads to increasing the rate base, from which follows growth in earnings and growth in dividends for shareholders.” The group argues in the petition that “investing in the operation of an aging plant today . . . scheduled to close in 2022 may result in unnecessary capital improvements and long-term stranded assets.”

PNM did not return calls requesting comment. –Abigail Sawyer

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