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San Juan battle lines drawn

July 2014

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The battle over where New Mexico’s electricity will come from after Public Service Company of New Mexico shuts down half of the coal-fired units at San Juan Generating Station near Farmington is growing.

Environmentalists and renewable energy advocates adamantly oppose a PNM proposal to increase its share of coal-generated electricity from San Juan by 132 megawatts after some of the plant’s other co-owners abandon it.

They fear PNM is committing New Mexico consumers to another two decades of coal-fired electricity despite rising costs from federal environmental regulations, while squandering an opportunity to double down on renewable energy for the future.

PNM maintains its plan is the most cost-effective approach to meet federal mandates to reduce nitrogen oxide and other emissions at San Juan while still maintaining the electric system’s reliability and affordability for New Mexico ratepayers.

The issue is expected to come to a head this fall, when the state Public Regulation Commission holds hearings about San Juan.

Steve Michel, chief counsel for Western Resource Advocates, said PNM basically is proposing to shoulder New Mexico ratepayers with more responsibility at San Juan by picking up the slack for other owners who will leave the plant under a plan to shut two of the station’s four generating units by 2017.

Close another unit

“The problem is, even with the two-unit shutdown, the plant will still produce more megawatts of electricity than the facility co-owners want, so PNM is acting like a sponge to absorb the excess capacity,” Michel said. “It shouldn’t be PNM’s role to take on what others don’t want. I think it reflects a lack of interest in shutting down any more of the plant’s capacity.”

Rather than fully maintaining the plant’s two remaining units, Michel and others say PNM should forego the extra 132 MW and possibly consider shutting down a third generator.

“We need to look at the long-term implications of what we do today,” said Mariel Nanasi, executive director of New Energy Economy. “In other states like California, utilities are choosing solar and wind generation as we move forward, not investing more in coal. PNM is asking us to be the sponge for other utilities that are fleeing San Juan.”

The San Juan overhaul reflects efforts to bring the plant into compliance with federal air-quality standards that aim to control nitrogen oxide emissions, which cause haze.

PNM and its co-owners propose shutting two units at San Juan, then installing new pollution controls on the remaining ones. The Environmental Protection agency is expected to accept that plan in September, culminating a yearlong period of public comment.

After that, PNM still needs PRC approval to actually abandon the two units targeted for shutdown, plus approval for alternative generating resources to make up for lost electricity.

But while all the owners are in agreement on shutting half the plant, negotiations have continued on the stakes that each one will retain in the remaining units.

Those negotiations are complex because PNM is one of nine co-owners, which include utilities and municipalities from at least four different states. And, with four of the nine owners now planning to completely relinquish their interest in San Juan, PNM has been negotiating with the others about how to divvy up the remaining stakes and the costs for new pollution controls.

PNM currently owns about 46 percent of San Juan’s total 1,701 MW net generating capacity. That total will be cut by about 838 MW after the two-unit shutdown.

Under PNM’s latest proposals to the PRC, the utility would add 132 MW to its current stake in one of the two remaining units as other owners relinquish their shares. All told, PNM would lose 286 MW of generating capacity at the plant, but retain 497 MW.

That’s different from what PNM proposed last December, when it called for acquiring 78 MW more of capacity in one remaining unit. That would have meant losing 340 MW of ownership in the plant overall, while retaining 443 MW.

Complex negotiations

PNM executives said the increase reflects the complexity of negotiations with other owners.

“By shutting down two units, we had to look at restructuring all remaining shares in the plant,” said PNM Planning and Resources Director Pat O’Connell. “Until now, we weren’t completely sure which owners were definitely exiting and which ones would increase their shares.”

Apart from PNM, the city of Farmington will increase its stake from 43 MW now to 65 MW to maintain capacity when other owners leave, he said.

To make up for lost generation and meet growing electric demand in coming years, PNM wants to acquire another 134 MW of electricity from the Palo Verde Nuclear Generating Station in Arizona, add a new 177 MW natural gas-fired plant near Farmington, and build 40 MW more of utility-scale solar generation.

Based on extensive computer modeling in the past year, PNM says that would allow it to maintain system reliability at the lowest cost after the two-unit shutdown.

“Our modeling shows it’s a good plan,” O’Connell said. “It reduces coal while increasing nuclear, gas and solar. That gives us a more balanced mix of resources to maintain system reliability, and it’s the least expensive plan compared to other options.”

$90 to your bill

Based on preliminary estimates, the utility says its plan could cost average residential customers about $90 per year, or about 10 percent more on their bills after 2018.

But opponents say the long-term costs of locking in more coal, rather than adding more renewables as replacement power, will be far more costly in the long term. That’s because a host of new environmental regulations are coming in the next year or so, including a new rule on how power plants manage coal ash disposal, water intake and effluence, and carbon emissions.

The EPA proposed in June that states reduce their carbon emissions from coal plants 30 percent below 2005 levels by 2030. If that rule is approved as-is next year, it would mean New Mexico would need to cut its current carbon-emission rate by 34 percent, according to Maureen Gannon, PNM’s executive director for environmental services.

The impact on San Juan is not yet clear because EPA’s proposals allow states to implement many measures, such as increasing energy efficiency to lower consumption while adding more renewable resources to systems, rather than just shut coal generators or add pollution controls. In addition, the rule requirements could change through public comment over the next year.

The environmental and renewable energy groups insist that if their proposals are adopted, it would cost consumers less that what PNM proposes, but none had any kind of customer cost projections or data.

Studying EPA’s rule

“The proposed rule and supporting documents amount to 1,500-plus pages,” Gannon said. “We have a team reviewing it, but it’s not an easy rule to digest. We’re still trying to understand its implications.”

Environmentalists and renewable advocates say it clearly will impact San Juan, especially if PNM absorbs another 132 MW of coal capacity at the plant.

“Our calculations indicate PNM’s current plan at San Juan will not meet the new EPA requirements,” said David Van Winkle, energy chairman for the New Mexico Coalition for Clean Affordable Energy.

In addition, coal ash regulations, which the EPA will finalize in December, could force costly investments by PNM in new disposal methods, he said. In fact, the utility told investors in June that it faces “significant exposure” from that forthcoming rule.

And apart from new federal regulations, PNM faces rising costs for the coal it consumes at the plant, which is supplied by BHP Billiton’s San Juan Coal Mine. BHP is expected to significantly increase prices after the two-unit shutdown to make up for lost sales.

Hearing in October

As a result, opponents want PNM to provide more answers about the costs of absorbing additional coal from exiting San Juan owners given upcoming environmental regulations. They also want a more thorough assessment of the other replacement power, including the cost-effectiveness of adding more nuclear as opposed to more renewables such as wind and solar.

In early July, they asked the hearing examiner, Ashley Shannauer, to divide the case into two phases but he rejected those requests last week, confirming instead that all issues will be reviewed in a single hearing in October.

“There are long-term policy questions about whether we should be investing in coal at all at this point, or in nuclear energy, especially given the declining costs for renewables,” Nanasi said, adding it’s unclear if PNM’s plan would cost the least.


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