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PNM considers coal-mine purchase for San Juan fuel

PUBLISHED: Monday, November 17, 2014 at 6:11 pm

Public Service Company of New Mexico is evaluating options to buy the San Juan Coal Mine, which supplies fuel for the coal-fired San Juan Generating Station near Farmington.

The mine, which is owned by BHP Billiton, has supplied all the coal used to run the plant since the plant opened in 1973, but the current supply contract expires in 2017.

The contract expiration is a critical issue that must be resolved by PNM and four plant co-owners that will continue to operate San Juan after two of the plant’s four generating units are shut down in 2017 to comply with federal haze regulations. The partners want to determine the future costs for long-term fuel supplies before they sign a definitive agreement to continue jointly running the plant after 2017.

But rather than sign a new contract, PNM and Tucson Electric Power — which owns the second largest stake in the generating plant after PNM — have entered into confidential negotiations with the BHP subsidiary that runs the mine to buy the operation, according to PNM’s quarterly financial earnings report released on Oct. 31. The parties want to reach an agreement by the end of December, but so far progress in the negotiations remains confidential.

“We’re right now evaluating alternatives,” said PNM spokeswoman Susan Sponar. “We haven’t yet made any decisions about the mine. Obviously we’re looking to find the lowest-cost alternative for our ratepayers.”

Environmental organizations, however, question whether buying the mine would indeed be the least-cost option. They also question whether acquiring the mine would lock ratepayers into coal-fired electric generation for many years to come — along with liabilities related to the mine — at a time when utilities nationwide are replacing coal with renewable resources.

“It’s a risky bet, a gamble when other utilities are moving away from coal,” said Nellis Kennedy-Howard, senior representative for the Sierra Club’s “Beyond Coal” campaign in the Southwest. “They’re working to keep the San Juan plant going for many years to come instead of tapping into clean energy sources to replace coal generation.”

Steven Michel, chief counsel for Western Resource Advocates, said PNM likely would be required to seek approval from the New Mexico Public Regulation Commission to buy the mine.

“To be fair, there may be good business reasons for them to do this, but it needs to be very carefully evaluated,” Michel said. “A large number of assets and potential liabilities come with it, from environmental to employee issues and contracts.”

Michel said environmental groups are particularly concerned because the utilities negotiating with BHP Billiton have a stated goal of signing a “binding” and “enforceable” letter of intent for the mine purchase by Dec. 31, despite lack of consultation with the PRC.

“It looks like PNM is going forward without any oversight by the PRC, and we question whether they can do that,” Michel said. “It’s a big deal, the kind of thing regulators must look at to make sure utility customers are protected.”Deck starts here.


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