PNM: Rise in power plan’s cost due to error, omission

Posted: Tuesday, January 13, 2015 9:00 pm | Updated: 1:33 pm, Tue Jan 20, 2015.

Correction appended

Public Service Company of New Mexico has told state regulators that its original estimated price tag for a plan to replace power at the coal-fired San Juan Generating Station have increased by more than $1 billion over the last year, in part due to miscalculated coal costs and adding in maintenance costs. Those costs will be passed along to the company’s half-million customers through rate payments.

In addition, the Farmington Electric Utility System alerted PNM that it will not increase its capacity — as planned — at the San Juan Generating Station. That leaves PNM scrambling to find a buyer for space on the coal-fired unit that will become available when other partners pull out of the plant.

The New Mexico Public Regulation Commission is in the midst of a 10-day hearing about PNM’s power plan.

PNM and its partners at the San Juan coal plant have proposed closing two of its four units to reduce haze in the region under a federal mandate. PNM wants to replace the power generated at those two units with a combination of nuclear energy, natural gas, solar power and more coal capacity on one of the remaining units at San Juan, Unit 4. PNM insists the plan will provide the most reliable power at the least cost to ratepayers.

The U.S. Environmental Protection Agency has approved the plan for closing half of the San Juan plant. The plan, and how PNM wants to pay for it, now need approval from the New Mexico Public Regulation Commission.

Many groups, including environmentalists, applauded PNM for planning to reduce overall coal power at the San Juan generating station. But some have pushed for PNM to replace that power with more solar and wind energy and to reduce its coal capacity from 132 megawatts to 78 megawatts at San Juan.

Pat O’Connell, PNM’s director of resource planning, confirmed during recent testimony before the Public Regulation Commission that the costs of the plan are about $1 billion more than estimates in the company’s original power replacement plan, which was submitted to state regulators in December 2013. The cost estimates increased over the last year and included the planned purchase of an additional 54 megawatts of coal-generated capacity for PNM at San Juan’s Unit 4 and an adjustment for changes in the forecast demand from customers for electricity. Another $532 million in fixed capital maintenance costs were added to the estimated costs of the power replacement plan in August. Correcting a fuel cost error added another $367 million to the plan.

Even with the additional costs, PNM believes the power replacement plan it presented to state regulators would be the best for customers when compared with hundreds of options it analyzed that involve various fuel sources.

Even with the additional cost, PNM believes the power replacement plan it presented to state regulators is the best for customers out of hundreds it analyzed with various fuel sources.

Meanwhile, on Tuesday, PNM said Farmington Electric, which provides power to all of San Juan County, had decided not to add more coal capacity beyond the 43 megawatts it already owns at the San Juan generating station. The utility had looked at buying 65 megawatts of additional capacity currently owned by the city of Anaheim, Calif., and a Utah utility.

Anaheim is one of four partners looking at leaving the coal-powered plant after 2017. It is the same year PNM’s contract to buy coal from the nearby San Juan mine ends. PNM, which owns the majority share in the plant and is the operator, has to find a way to sell the extra coal capacity at the facility. Farmington’s decision not to buy any of the extra capacity makes the situation more urgent.

In a Jan. 7 letter, the Farmington utility told PNM it wasn’t going to buy the additional capacity due to unresolved issues, including the “significant degradation in [San Juan] Unit 4 reliability performance, uncertainty and likely unfavorable economics regarding future fuel supply, uncertainty pertaining to operations and ownership structure post-2022 and other evaluated liabilities unacceptable to the city.”

Farmington said it remains committed to the current coal power it owns at San Juan.

Correction: This story has been amended to reflect the following clarification. An additional $1 billion in costs added to PNM's plan since December 2013 reflect the omission of maintenance costs, an error in fuel costs, and the addition of coal capacity for PNM at the San Juan Plant. 

Contact Staci Matlock at 986-3055 or Follow her on Twitter @stacimatlock.

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