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Farmington Wants Out of Coal

Published by Tri-City Tribune

January 13, 2015

Four owners of Unit 4 at PNM’s San Juan Generating Station want out and are willing to give away 119 megawatts of coal-fired power.

The Farmington Electric Utility wants in on the deal and began negotiating with three California entities and Tri-State Generation, out of Colorado, to acquire 65 megawatts of the 119 available. The city of Los Alamos and a Utah-based power company will take the rest, if the negotiations go as planned.

This was the message Jim McNichol, of the Farmington Electric Utility, gave the Farmington City Council during a July 2 work session at city hall.

“Those owners are looking for a clean break,” McNichol said. “We believe if Farmington didn’t pursue this opportunity someone else will.”

San Juan Generating Station owned and operated by Public Service Company of New Mexico, will go through major changes in the next five years. The company entered an agreement with the state of New Mexico and the Environmental Protection Agency to retrofit two units with Selective Non-Catalytic Converters, SNCR, and to close down Units 2 and 3 by 2018. This is being done to meet the Best Available Retrofit Technology, or BART, to cut down on the area’s regional haze.

As the plant moves toward these changes in operation, the California owners need to pull out, along with Tri-State Generation. California will no longer be able to purchase coal-fired power, because of state law, and Tri-State is diversifying its portfolio by focusing on natural gas fired power.

McNichol said these entities need to get out of the plant, and therefore Farmington will be able to acquire 65 megawatts at “zero” cost to the city. “We are not constructing a new plant; there won’t be any fees or transaction or financial closing costs.”

This would increase the city’s ownership in San Juan Generating Station to 20.2 percent, which would come with some financial responsibilities, including paying a portion of the SNCR upgrades and having to pay for the decommissioning of the plant when it closes.

“A big topic is eventual plant decommissioning. There will be costs associated with that, there will be liabilities associated with that,” McNichol said.

Electric Utility Director Mike Sims added that the decommissioning would most likely be less than $40 million and the city’s share would be around $900,000. “It’s not huge.”

There also are costs associated with paying for the power. Although the ownership would be free, the city would still have to pay anywhere from $200 to $400 per kilowatt hour. “In aggregate we still believe the range of $200 to $400 kilowatts is a good number,” McNichol said.

Councilor Gayla McCulloch said she thought the entities should pay the city take over the 65 megawatts. “I would hope instead of these people wanting out and going away with nothing – I would hope they would walk away paying us to take the liability. I hope we maintain a bullish seat at the table. I am very much for us aggressively negotiating this,” she said.

Councilor Mary Fischer asked about the cost of coal, whether that would increase if BHP pulls out and shuts down San Juan Mine. She also wanted to know if PNM had secured water rights from the Jicarilla Apache Tribe for continued operation of the power plant.

The coal contract between PNM and BHP ends in 2017, which is one year before Farmington would take over ownership, Sims said. “We have been in talks with BHP for years in anticipation of the expiration of this contract. PNM and the owners have options, outside of what BHP might be willing to negotiate with us or not,” he said, adding that one of those options is “confidential.”

As far as water, Sims said the need for water will be reduced by 50 percent because two units will be shut down.

Mayor Tommy Roberts also asked about the availability of coal with the Obama Administration’s recent stance against the fossil fuel.

“There’s been a lot of press recently on what the president came out with potential new environmental regulations on existing and new coal fired power plants. This is nothing new. The president ran on this platform in 2008,” Sims said, adding that Congress did not pass the Cap and Trade bill and would not likely allow for further reductions in carbon emissions. “He (Obama) is somewhat limited – there are laws that restrict the EPA from imposing regulations that cannot be met.”

Councilor Dan Darnell wanted to know if the state of New Mexico or the Federal government might place a mandate on municipalities with regard to what type of power generation is in their portfolio.

“We don’t anticipate it, but it is something that could happen,” Sims said.

Councilor Jason Sandel said he heard from two Public Regulation Commissioners that mandating a diverse electric portfolio could be coming.

Sims stated that would be “difficult” to do.

Sandel, however, pressed the issue, pointing out that a study completed in 2012 by Pace Global showed the city would be better off by diversifying its electric generation to include less coal and more natural gas and solar.

Pace Global representatives, however, were at the July 2 meeting and stated that they changed their mind on that issue, “because there is an opportunity to acquire it at zero costs. The cost is zero on a purchase basis, but there is a $500 kilowatt cost on it,” said Pat Augustine with Pace.

“The impression I have is we went and sought out a study to justify our position,” Sandel said. “Six months later we hear (from Pace Global), ‘Coal is OK, as long as we can add natural gas to it.’ My concern is that we wanted the results that we got and justified the position that we take.”

Gary Vicinus, also of Pace Global, stated his company’s opinions are independent. “We have been asked to look at options and work to create options with a completely independent view. The analyses and conclusions of our analyses have always been ours,” he said, adding that the conclusions were reached independently with no pressure in coming up with an answer.”

Sandel stated that he is in favor of natural gas-fired power and believes the city ought to build a natural gas plant and say that the natural gas needs to come from San Juan County. “Yes we need power, but the risk of coal is tremendous. We went down the road that we need to build natural gas and we need renewable. I don’t think this is surprise to us, I think we realized that it would be available once all of these bad deals were made. It’s time for us to commit to a future. This is an energy conversation going on across the U.S.,” he said.

Darnell compared the quest for power as an “incredible journey,” when he made the motion to continue negotiations for PNM’s 65 megawatts. McCulloch seconded the motion, which was approved on a three-to-two vote, with Sandel and Fischer voting against the plan. Roberts broke the tie vote, in favor of the negotiations.


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