Investigation & Cost-Benefit Analysis Before Any Further Investment in San Juan

 

On March 17th a San Juan Coal Generating Station Unit 1 coal silo collapsed causing an explosion and fire. Since that date Unit 1 has been inoperable. Public Service Company of New Mexico (PNM) plans to repair that 45-year-old coal unit and ultimately have New Mexican ratepayers pay to fix it.

In compliance with the PRC’s request, PNM responded to the petition on May 8th.

According to PNM, this explosion was due to a faulty weld in the Unit 1 Coal Silo which can hold up to 816 tons of coal. It was holding 614 tons when the collapse happened on March 17th causing the fire, explosion and shut down of San Juan Unit 1. PNM’s last inspection was performed in 2015 -- though they claim there is no industry or state requirement for welding inspection schedules.

In their response, PNM revealed that the cost to get the Unit back up and running will be between 15 and 25 million dollars. Due to insurance coverage, the cost to the owners of the plant - PNM and Tucson Electric Power - will be the 2 million dollar insurance deductible. According to PNM, their share of the cost, a million dollars, is within their current year’s operating and maintenance and capital budgets and they have said there will be no impact on rates.

Yet, they refuse to perform a cost-benefit analysis the purpose of which would be to not only evaluate the prudence of investing millions into a Unit that is already scheduled to be closed in 4 years -- but also the opportunity cost -- what else could that money be spent on.

In fact, PNM admits that there has been no need for replacement power during the Unit’s closure. According to PNM, the Unit’s coal energy produced this time of year is produced in excess of NM ratepayer demand and sold on the market as off-system sales.

We are left with the following questions:

  1. Does the insurance claim award HAVE to be spent to restore the Unit to operation?
  2. If not, what could the 15-25 million be spent on?
  3. Given that the power is currently not needed and the Unit will be retired in just 4 years, what are the costs and benefits to investing this money in its repair when in 4 years time, it could be turned to scrap metal?

It is unclear if PNM will be collecting it’s guaranteed rate of return on the expenditures -- their guaranteed 10% profit on all capital expenditures.

Hopefully, PRC staff’s reply, scheduled for May 21st, will include some of these questions. We’re working to ensure that it does.

Thanks to everyone who signed the MoveOn petition asking the PRC for action!

The New Mexico Public Regulation Commission has ordered PNM to respond to the joint complaint filed by our coalition - PNM has until May 8th to respond. 

Read the Santa Fe Ne Mexican Article HERE

Read the Farmington Daily Times Article HERE. 

Read the PRC order HERE. 

Background:

On April 12th New Energy Economy, on behalf of nine other Native, Hispanic, health, and environmental organizations, filed a Joint Petition requesting that the New Mexico Public Regulation Commission investigate the cause of the explosion and collapse at Unit 1 of the San Juan Generating Station.

The petition also calls for an explanation of how much replacement energy will cost ratepayers now and in the future, and most importantly a comprehensive cost benefit analysis to determine if any further investment in San Juan is reasonable and consistent with the long-term financial well-being of ratepayers compared to an investment in other energy resources.

According to PNM, the San Juan coal plant is not cost-effective for ratepayers after 2022. In fact PNM has already testified that purchasing energy on the open market is cheaper today than energy costs from San Juan.

Before PNM invests any more millions of dollars shouldn’t there be an adequate financial analysis to determine if ratepayers would save more money investing in alternative energy sources? If continuing to purchase on the open market is cheaper? PNM should have to prove that additional capital (repair) expenditures are worthwhile. 

In addition to an investigation into the cause of the coal silo collapse and explosion, this joint petition requests that PNM evaluate and report on all viable alternative options before investing millions of dollars into San Juan. 

PNM claims that their insurance and current operation and maintenance budget will cover the costs of repair such that ratepayers will not experience another rate increase due to this coal silo collapse and explosion. Its common sense that when an incident of this magnitude occurs, standard practice would be to re-evaluate the investment in and extension of the life of the plant given the availability of cheaper and less harmful alternatives.

Millions of dollars for ratepayers are at stake. Regardless of whether or not its in the budget - the PRC should require PNM to spend our money wisely - those millions could be spent on renewables and create savings for all of us.

See the Press Release on the Joint Petition Filing HERE.

Read the Farmington Daily Times Article about the Joint Petition HERE.

Read the Santa Fe New Mexican Article about the Joint Petition HERE

Read the Albuquerque Journal Article about the Joint Petition HERE.