Posted: Saturday, June 25, 2016 10:30 pm | Updated: 12:55 pm, Sun Jun 26, 2016. By Steve Terrell, The New Mexican
Pacific Gas & Electric last week announced plans to close its Diablo Canyon Power Plant, California’s last operating nuclear power facility.
Earlier this month, the Chicago-based utility Exelon announced it will shutter two Illinois nuclear plants in the next two years. Together, the two facilities have lost a combined $800 million in the past seven years.
New Mexico has no nuclear power plants. But the state’s largest utility, Public Service Company of New Mexico, is buying a controlling interest in one of three units at the Palo Verde Nuclear Generating Station near Tonopah, Ariz., a unit PNM has been leasing for some 30 years. And, to the chagrin of some environmental and clean-energy groups, the company is asking its customers to pay for the purchase.
So why, at a time when some other parts of the country are moving away from nuclear power, is PNM vying to keep it in New Mexico’s energy mix?
“Nuclear is expensive,” said Mariel Nanasi, executive director of New Energy Economy, a clean-energy advocacy group that is an intervener in the rate case. “PNM wants to stick us with high-cost nuclear in this rate case that is unneeded and that has enormous cleanup cost risk and associated exorbitant capital expenditures.”
PNM says its investment in nuclear is good for customers and the environment.
“PNM’s analysis consistently shows Palo Verde Nuclear Generating Station to be a necessary cost-effective resource for our customers,” said PNM spokeswoman Ryan Baca in a written statement. “It is a carbon-free resource, and nuclear power is an important part of achieving carbon reduction goals.”
Palo Verde provides energy to more than 4 million people. About half the plant’s output goes to Arizona customers, with the remaining power exported to California, New Mexico and West Texas.
Some interveners in the rate case, including the state Attorney General’s Office, have questioned PNM’s cost analysis. The case is scheduled to go before the state Public Regulation Commission this week.
Ralph Cavanagh, co-director of the energy program at the Natural Resources Defense Council, was part of the negotiations with Pacific Gas & Electric that led to the decision to shutter the Diablo Canyon plant by 2025. This, he says, will be the very first nuclear power plant shutdown that’s conditioned on 100 percent replacement with renewable energy with no carbon emissions. The plan must be approved by California regulators.
In a telephone interview, Cavanagh stressed that his organization has not analyzed or taken a position on the future of Palo Verde, which sells some of its energy to Southern California. He also cautioned against comparing the situation in California to that of New Mexico.
Cavanagh said the California utility’s Diablo Canyon move was an economic decision sparked by that state’s energy and climate change policies, which require a renewable energy portfolio of 50 percent and increasing energy efficiency in buildings by 50 percent, both by 2030.
In contrast, New Mexico’s Renewable Portfolio Standard requires that 20 percent of all electricity sold by investor-owned electric utilities, and 10 percent sold by cooperatives, come from renewable energy resources by 2020. We aren’t there yet. In 2014, renewable energy supplied 9.3 percent of the electricity generated in the state. In past years, there have been some efforts in the state Legislature to weaken the renewable energy portfolio standards. None has been successful, at least yet. PNM’s Baca said in an interview that California has a major advantage over New Mexico in renewable energy: hydroelectric power.
The California Energy Commission’s website says hydroelectricity indeed is a major source of power there. However, the amount produced “varies each year, and is largely dependent on rainfall. Unfortunately, California is in its fourth year of a severe drought.”
Mitch Singer, a spokesman for the Nuclear Energy Institute in Washington, D.C., said in an email last week that he doesn’t understand opposition to importing nuclear energy from Arizona, “given Palo Verde is carbon-free electricity, and uses treated wastewater from Phoenix to cool the reactors. Sounds like a win-win.”
Cavanagh said a number of environmentalists champion nuclear power. He said he doesn’t oppose all nuclear energy. “There are plenty of ‘theologians’ on both sides of the issue,” he said. “I’m not one of them.”
But even though New Mexico is not on the front lines of renewable energy policy, Cavanagh said there is a bright spot in a proposal by PNM that is part of the utility’s rate case in front of the Public Regulation Commission.
That’s a concept called “revenue decoupling,” which Cavanagh said is designed to eliminate the link between electricity sales and company profits. Instead, profits would be linked to the number of customers served.
Cavanagh said about half the states have at least one utility operating under revenue decoupling.
PNM is asking state regulators to approve its plan to raise its rates for residential customers by 15.8 percent. Part of the rate increase covers $163.5 million the utility spent to buy 64 megawatts of generating capacity from Palo Verde.
The company’s lease on Palo Verde Unit 2, one of three units PNM leases or owns, was set to expire this year. But instead of extending the lease, as it has done in the past, PNM decided to purchase the majority of its share in the unit.
PNM has tried twice before to buy Palo Verde Unit 2. In 2008, the utility failed to get approval from the PRC. Then, in 2011, PNM was outbid by another company.
The $163.5 million price tag is around $60 million more than the estimated net book value for Palo Verde electricity, originally claimed by PNM. Later, the company filed documents lowering the net book value by about 20 percent, to about to $83 million. The Public Regulation Commission’s hearing examiner ordered PNM to provide more written details on its cost estimates.
Some interveners have objected to including the Palo Verde acquisition in PNM’s rate base, pointing out that the utility did no financial analysis to justify the price. Among those objecting is the state Attorney General’s Office.
“PNM wants ratepayers to pay for [Palo Verde] capacity at a ‘market price’ that is more than twice the book value,” Deputy Attorney General Joseph Yar wrote in a May 23 filing. “With no analysis and no way of knowing the fair market value of the capacity, one is left with only one possible conclusion: PNM had an incentive to purchase the capacity. Shareholders benefit when the company makes investments that are included in the rate base.”
Baca said PNM has disputed the contention that no financial analysis has been done on Palo Verde.