Two of nine co-owners of the coal-fired San Juan Generating Station – Tucson Electric Power Co. and Utah Associated Municipal Power Systems – have sent letters to the U.S. Environmental Protection Agency
requesting a year extension on the deadline to install haze controls at the plant.
Under EPA regulations to lower nitrogen oxide emissions, which cause haze, San Juan’s co-owners have agreed to close two of San Juan’s four generating units and place NOx controls on the remaining ones. The EPA is expected to approve that plan in September, giving the owners 15 months to install the NOx filters at a cost of $160 million.
But TEP and U-AMPS now say they need more time to determine if, after carrying out the haze plan, further investments will be needed to bring San Juan into compliance with EPA’s newly proposed carbon rules, which call for cutting CO2 emissions at existing power plants to 30 percent below 2005 levels by 2030.
Plant operator and co-owner PNM said it does not believe a delay is necessary since shutting half the plant will cut CO2 emissions by about 50 percent, apart from the NOx reductions.
But that may not be enough to meet EPA’s carbon regulations, encouraging TEP and U-AMPS to seek more clarification on compliance costs.
“If we don’t meet the CO2 standards, then we need to know what other compliance options are available to us and the costs associated with all of that,” U-AMPS general counsel Mason Baker told the Journal .
Depending on those costs, it could be more economical for utilities like TEP – which is the second-largest owner at San Juan after Public Service Company of New Mexico – to forego investing in new NOx controls and maybe even withdraw from the plant.
That’s something TEP executives would not rule out in an interview with the Journal .
“We’ll try to keep all of our options open to see how the proposed carbon rule impacts all of our facilities and customers,” said Eric Bakken, TEP’s senior director for transmission strategy, land and environmental services. “We’ll do what’s in our customers’ best interests.”
Any such action by a San Juan co-owner could significantly disrupt future plans at the plant given the complex ownership structure, which includes nine utilities and municipalities from four different states. Four of those entities already have opted to completely withdraw from San Juan after the two-unit shutdown in January 2017.
New term sheets
The remaining co-owners – PNM, TEP, U-AMPS, the city of Farmington and Los Alamos County – signed a nonbinding term sheet June 26 that defines their new ownership stakes and responsibilities in San Juan after 2017, following more than a year of tenuous, mediated negotiations. That agreement still must be approved by their respective directing boards and by state and federal regulators.
PNM, which is the majority owner and operator of the plant, says the new term sheet demonstrates solid commitment by the remaining participants to stay in San Juan and to move forward with the haze plan.
“That’s a significant milestone,” said PNM Vice President for Regulatory Affairs Gerard Ortiz. “It offers a clear understanding of who is exiting the plant, who is staying and how much each one will own in the remaining units. It’s a tremendous achievement.”
Some minor adjustments might be needed to finalize the agreement, Ortiz said, but there is little risk that any remaining partners will withdraw.
No delay needed
“We need to finalize the agreements, but practically all the needed accords are now contained in the term sheet,” Ortiz said. “If people had serious concerns, I don’t think we could have gotten this signed.”
If the EPA grants a year delay on installing NOx controls, it would not necessarily disrupt the haze plan, since the two-unit shutdown still would take effect on schedule, and the NOx filters would just be added later, Ortiz said.
“We certainly respect TEP and U-AMPS’ right to take any position they want,” Ortiz said. “They’ve asked for delays, but we just don’t think it’s necessary.”
TEP and U-AMPS, however, say they still must clarify many unanswered questions to draw up individual plans for complying with EPA’s carbon regulations in their own states, since EPA rules call for each state to submit compliance strategies. Both entities want to know if they will earn credits for San Juan carbon reductions that can be applied to plans elsewhere.
“That’s the biggest question for us,” Bakken said. “TEP has a number of generating plants in other states and on tribal lands where it’s taking steps to reduce CO2 emissions, and we want to know what we’ll get credit for prior to investing more money at San Juan.”