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Farmington reneges on San Juan agreement

PUBLISHED: Tuesday, January 13, 2015 at 5:04 pm

The city of Farmington has pulled out of an agreement with co-owners of the coal-fired San Juan Generating Station to acquire an additional 65 megawatts of power at the plant once two of its four generators are shut down in 2017.

Famington’s decision could mean that more of the power plant’s generating capacity gets cut than is currently anticipated in a Public Service Company of New Mexico proposal to bring San Juan into compliance with federal haze regulations.

The city cited uncertainty about the future of the plant near Farmington, as well as questions about future supplies and plant reliability — similar to criticism made by others.

Under PNM’s plan, generating units two and three will be closed, and pollution controls will be installed on remaining units one and four to reduce nitrogen oxide emissions, which cause haze.

After the shutdown, four of the plant’s nine co-owners expect to abandon the facility, leaving the other five owners to keep operating the remaining units. But to do that, PNM and Farmington agreed in a tentative deal last June to increase their stakes in unit four, given that two of the departing San Juan owners will be abandoning their shares in that generator.

Farmington agreed to raise its ownership by 65 MW, up from its current 43 MW. PNM agreed to raise its stake by 132 MW, up from its current 195.

But Farmington now says it will forego the additional generation because of “unresolved issues” in negotiating a final ownership agreement with the plant’s remaining partners.

In a Jan. 7 letter to PNM and other co-owners, the director of Farmington Electric Utility said negotiations have dragged on without an end in sight, interfering with the city’s ability to develop alternative generating resources.

Michael Sims also cited in his letter concerns about “significant degradation” in the reliability and performance of unit four and “likely unfavorable economics” regarding future coal supplies for the plant. He also cited ongoing liabilities associated with the plant and long-term doubt about San Juan’s future since another ownership agreement must be negotiated in 2022 when current contracts end.

Sims, in a statement Tuesday, said the city is committed to retaining its current 43 MW ownership in unit four. The city will help PNM and other owners find a new taker for the 65 MW Farmington is forgoing, he said. He declined further comment because of confidentiality agreements with San Juan partners.

PNM spokeswoman Susan Sponar said PNM will still seek to acquire the extra 132 MW in unit four, but it won’t pick up the slack left by Farmington.

Still, Farmington’s withdrawal could complicate PNM efforts to procure the added megawatts since that proposal is opposed by a number of parties at hearings underway before the state Public Regulation Commission, which must approve PNM’s plans for San Juan.

“Farmington’s decision kind of confirms the risk and uncertainty associated with San Juan right now,” said Steve Michel, chief counsel for the environmental group Western Resources Advocates. “One of the big problems dogging that facility is that has more generating capacity than anyone wants. That’s why PNM upped its stake in unit four in the first place, and now it has to deal with an additional 65 MW of capacity that remain unclaimed.”


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