With power plan up for debate, some say PNM needs more renewables

When Trent Edwards and his staff at Santa Fe’s Duel Brewing flip on the light switches and ignite the electric boilers to craft their Belgian-style beer, most of their power is generated from coal mined in New Mexico’s northwest corner 230 miles away.

That doesn’t sit well with Edwards, an artist, manager and now beer maker.

“Ideally, if I could, I’d power my own business with solar panels on my roof and wind turbines,” he said. “I think wind turbines are beautiful.”

As Public Service Company of New Mexico begins making its case this week for a new power-replacement plan, one that would reduce the amount of coal it uses to produce electricity, Edwards is among the company’s customers who think the plan doesn’t go far enough to end PNM’s reliance on dirty fossil fuels, even as other power companies across the nation are moving toward cleaner, renewable sources.

The state Public Regulation Commission will hear testimony on the plan, which federal regulators already have approved, in a 10-day public hearing beginning Monday.

Complicating the debate is PNM’s ownership stake in a coal-fired power plant near Farmington that many environmentalists believe to be among the dirtiest power-generating facilities in the nation. Emissions from the plant, known as the San Juan Generating Station, have for decades left an ugly black haze hanging over the Four Corners region. In 2011, federal regulators ordered PNM to clean up the haze.

To do that, PNM, the state’s largest electricity provider with a half-million customers, plans to shut down two of four coal-fired generators at the plant. The company would replace that electricity with power generated from a combination of nuclear, natural gas and a sliver of solar. It also would increase output from one of the remaining two coal-fired units at San Juan.

Renewable energy groups argue PNM should be including a lot more solar and wind, and a whole lot less coal and nuclear, in its plan. Even with the company’s plan to reduce coal power from San Juan, coal would still account for almost half of PNM’s electricity production for what critics believe could be another 20 years.

But PNM owns 46 percent of the generating station, and suddenly abandoning it, the company says, could mean lost jobs and a spike in the cost to produce electricity.

PNM’s plan for replacing coal-fired power is ultimately tied to a separate rate case the company recently filed with state regulators. PNM is asking for more money from customers to pay for new generating facilities and to pay for more than $200 million in lingering depreciation costs from the two San Juan power units it plans to shut down.

Shane Woolbright, a former Oklahoma utility trade association director, says PNM hasn’t picked the best mix of power sources to replace what it forgoes at San Juan. “I’m speaking purely from my perspective as a consultant to the utility industry,” said Woolbright, who owns PNM stock and is a member of the Sierra Club. “I think PNM will make money no matter what with this plan. But I think they will make more money by combining wind with natural gas than with their proposal.”

Deep ties to coal

When the coal-fired San Juan Generating Station began pumping out electricity in the late 1970s, it helped spark an economic boom across the state from Farmington to Albuquerque and north to Santa Fe. Nearby, the Four Corners Power Plant, another coal-fired facility, also provided electricity to PNM and to Arizona.

Both power plants have been supplied by nearby coal mines, helping keep the cost of power low. Both have provided hundreds of high-paying jobs, many of them to Navajos, in a low-income area desperate for jobs. Both have provided millions in revenue to the Navajo Nation.

But the coal and the electricity that spurred growth in cities miles away came at a heavy environmental price.

For decades, a dark haze belched from the power plants’ stacks and mixed with dust to stretch across the plateaus and mesas. It became a part of the landscape, a symbol of man’s influence for better and worse.

Environmental groups like the Sierra Club fought the company repeatedly to clean up tons of mercury, nitrogen oxides, sulfur dioxides and other contaminants emitted by the San Juan Generating Station’s stacks, all of which are potential contributors to health problems in the region. PNM has spent millions over the years installing scrubbers and other measures to reduce the pollutants, passing those costs down to customers.

Until recently, nine power companies shared ownership of the San Juan station, which was operated by PNM, the majority owner.

In order to meet the Environmental Protection Agency’s 2011 mandate to reduce haze, PNM and the state worked out a deal to shut down Units 2 and 3 at the San Juan plant by 2017. The company also will add new pollution controls to the remaining coal units. If the plan is approved, PNM would replace the 836 megawatts of electricity generated by the two units it plans to retire by adding:

• 177 megawatts of power from natural gas.

• 134 megawatts of nuclear power generated at the Palo Verde Nuclear Power Plant outside Phoenix, of which PNM has owned a portion for years.

• 132 additional megawatts of coal power capacity on Unit 4 of the San Juan Generating Station.

• 40 megawatts of solar power at a new facility PNM plans to build.

Under the new plan, coal would account for 46 percent of PNM’s electricity generation in 2018, down from 62 percent now.

PNM officials say it is the right power mix, helping the environment without hurting customers. “Our plan is the most cost-effective option for customers out of thousands we analyzed for cost, risk and reliability,” said Susan Sponar, PNM spokeswoman. “Closing the entire plant would be more expensive. While many customers tell us they want to see more renewable energy, they are also concerned about their bills.”

The company also cites the economic importance of the mine and the power-generating station to the region as another reason to keep both going. The company already is investing money in a job training program to offset any losses in mine or power plant jobs. It also is considering purchasing the mine.

Environmental groups, renewable energy advocates and some people familiar with utility numbers think PNM is wrong about the mix. They think it is great that PNM plans to significantly reduce its use of coal power from San Juan. But they say the resulting portfolio of energy sources is still too dependent on coal, not reliant enough on natural gas and renewables, and would charge customers too much for nuclear power. The plan, these people say, would also tie customers for at least 20 more years to an aging facility even as other partners in the plant get out.

Already, four of the nine partners in the plant — including the Southern California Public Power Authority, which provides power to at least four cities — have indicated they will no longer draw power from it after 2017.

Another partner, Tucson Electric Power, also is considering leaving and replacing coal power with natural gas and renewables.

Mariel Nanasi, an attorney and executive director of New Energy Economy, a Santa Fe-based nonprofit advocating for renewable energy, says PNM should be following suit.

“PNM’s plan is not the lowest-cost solution,” Nanasi said. “It is not the best plan for the health and welfare of New Mexicans or the environment. It is not the best jobs outcome. It locks in nuclear and coal energy, precluding any significant increase in the deployment of renewable energy for the next 20 years.”

Debating the power-replacement mix

On Monday, PNM will make its case before a state hearing examiner for replacing power generated at San Juan. The public, large commercial power users, renewable energy companies and environmentalists are expected to testify during the 10-day hearing, digging into complex numbers that make up a case former PRC member Doug Howe called one of the most important decisions state regulators will make for years to come.

At its core, the San Juan case will set the stage for the source of electricity that powers Edwards’ brewery, every Santa Fe home and business and PNM’s other customers for decades to come. And the San Juan case ultimately will impact the rate case that regulators will hear later this year, which will determine how much every PNM customer will pay for his or her power, whether it comes from coal, solar or nuclear.

Woolbright said he has read PNM’s entire 700-plus-page plan for replacing the coal power at San Juan from other sources, and he’s crunched some numbers based on his experience with other utilities. He believes the company would be wiser to keep the San Juan power plant operating but transform it into a natural gas-fired facility, powered by the plentiful gas supplies nearby in the San Juan Basin. Combine the natural gas power with new wind facilities in the New Mexico’s windy southeast, and PNM could provide power from New Mexico resources while continuing to provide jobs. He said Oklahoma and other states have been making similar conversions of coal plants to natural gas.

“Put $5 on every customer’s bill for the next three years, and that’s enough to pay for the upgrade,” Woolbright said.

Companies in 10 states including Wyoming, New York and Oklahoma have converted coal plants to natural gas. More such conversions are planned in the next decade.

Woolbright said PNM also wants to charge its New Mexico customers too much for nuclear power under the San Juan power-replacement plan. “Right now, PNM has a nuclear plant on their books that is a liability,” Woolbright said. “They’ve been selling the power for 3.7 cents per kilowatt-hour [on the open market]. They are not covering all their cost of ownership at Palo Verde. They want to shift those costs to New Mexico customers and charge them 6 cents per kilowatt-hour for the same power.”

Nanasi of New Energy Economy said there are other reasons to move San Juan completely off coal. She said additional costs and environmental problems for coal haven’t been taken into account yet, like coal ash, a byproduct of the mine and power plant operations that can pollute surface and groundwater. The EPA recently released a new regulation for power plant coal ash, though it’s not yet clear what that would mean for PNM.

Besides coal ash, the San Juan and Four Corners coal mines are believed to be the most likely cause of the nation’s largest methane emission hot spot that scientists from Los Alamos National Laboratory recently discovered hovering over the region. Methane is a powerful greenhouse gas contributing to climate change. But the potential environmental and financial impacts of climate change are not yet something utilities like PNM know how to roll into their costs, according to industry experts.

And PNM must consider costs to its customers — the company is limited by state law in how much it can charge for adding renewable power — while remaining attractive to its investors, who front the money for the utility to install new facilities. Investment rating services upgraded PNM’s rating to positive this year, although Moody’s noted that the timely recovery of San Juan costs “is a risk to monitor.”

What customers want

As it prepares for the hearing, the PRC has received dozens of comments opposing the details of PNM’s plan for replacing San Juan power, including from the city and county of Santa Fe. Not all of them oppose nuclear, but all of them do think the company needs to make a stronger effort to get off coal.

“We are disappointed with PNM’s lack of foresight in its proposed solution,” said the League of Women Voters of New Mexico in a Dec. 18 letter to PRC Commissioner Karen Montoya. “The market for renewables is growing as costs drop. New Mexico is in a prime position to benefit from this trend — a combination of solar, wind and [natural] gas is a cheaper replacement power package than coal and nuclear.”

Back at Duel Brewing, Edwards said he agreed, even if it means he has to pay a little more for his electricity. “I don’t want my bill to go up dramatically, but I’m not into coal. I think if there are alternative ways to get energy, we should do it,” said Edwards, whose monthly electricity bill runs about $1,300. “Coal is dirty. If it does a lot of harm, and I believe that it does, it is not good over the long term.”

“We have more natural energy [solar and wind] than almost anywhere,” Edwards said. “I say move it that way right now.”

Contact Staci Matlock at 986-3055 or smatlock@sfnewmexican.com.

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