PNM confident on San Juan plan despite losing support

After three weeks of public hearings, Public Service Co. of New Mexico says it’s confident that state regulators will support its plan to close half of the San Juan Generating Station near Farmington and replace the lost coal-fired electricity with a mix of nuclear, natural gas and solar power.

But during the hearings, which ended on Jan. 27, PNM lost some key support from parties that had previously backed its proposals. And, as the hearings came to a close, yet another organization, the Albuquerque Bernalillo County Water Utility Authority, came out in opposition.

Parties in the case are now preparing concluding summary briefs for the hearing examiner, Ashley Schannauer, to be followed by a final round of counter-briefs on Feb. 27. After that, Schannauer is expected to make a recommended decision to the PRC’s five commissioners, who must ultimately rule on PNM’s proposals.

PNM Vice President for Regulatory Affairs Gerard Ortiz said the utility remains firmly committed to its plan as the least-cost way of bringing San Juan into compliance with federal environmental regulations.

“My bottom line after the hearings is that our story held up,” Ortiz said. “If you look at the facts and step away from the rhetoric, retiring two of San Juan’s four units is still the best option. It will reduce coal production in the Four Corners by 800 megawatts, and over the long term, our plan will cost customers the least amount of money.”

Under PNM’s plan, ratepayers would be asked in 2018 to begin paying the estimated $500 million tab for shutting two generators, installing pollution controls on the remaining two and acquiring replacement power. If approved by the PRC, that would raise an average customer’s bill by 7 percent, or about $5.25 more per month.

But opponents say testimony during the hearings showed that PNM’s plan is more expensive than previously thought. They say shutting down more of the plant and bringing more renewable generation onto the grid would be cheaper in the long term.

PNM executives did confirm in the hearings that the company had previously miscalculated coal fuel costs, an error that could add about $367 million to the total cost of the utility’s plan over 20 years. That would not change the rate impact in 2018, but the miscalculations rattled some of the parties that previously supported an agreement, or stipulation, they signed with PNM in October to support its plan.

That agreement committed PNM to lower the amount it would charge customers for shutting two of San Juan’s generators and for the extra nuclear electricity it would acquire to replace coal.

But the errors, plus a decision by the City of Farmington to not buy an extra 65 MW of electricity in one San Juan unit, convinced three of six stipulation backers to withdraw their support.

PNM’s parent utility, PNM Resources, is now considering acquiring that extra 65 MW itself, along with 132 MW more that its utility would acquire to pick up generating slack as some owners exit the plant. That means PNM and its affiliates could be absorbing an extra 200 MW of coal electricity despite half of San Juan being shut down.

That, plus the lack of a new coal fuel supply contract for the plant and ongoing negotiations among San Juan’s remaining participants about how to divvy up the plant’s final ownership, convinced the Water Authority on Jan. 27 to join the opposition.

It also led to a downgrade of PNM’s stock outlook by global investment banking firm Jefferies, which changed its rating from “buy” to “hold” on Jan. 23 because it believes more coal acquisition by PNM will lower shareholder profits.

Some PRC commissioners said they, too, have concerns following the hearings, although Schannauer’s forthcoming recommendation will greatly influence their decision.

“I think the commission isn’t going to agree to the stipulation as a whole,” said Commissioner Patrick Lyons. “We’ll probably make some changes to it.”

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