With New Mexico’s decades-old reliance on massive coal-fired generating plants winding down, Public Service Company of New Mexico is facing a prolonged battle with local groups over the future of the state’s electric grid.
The company filed a new “integrated resource plan,” or IRP, with the New Mexico Public Regulation Commission last summer that calls for shutting down the San Juan Generating Station near Farmington by 2022, and pulling out of the nearby Four Corners Power Plant by 2031. It proposes replacing nearly 700 megawatts of lost coal-fired generation from those plants with a lot more natural gas, nuclear power and renewables like solar and wind.
The utility files an integrated resource plan with the PRC every three years to determine the most cost-effective, reliable and environmentally friendly mix of energy resources for the electric grid looking out 20 years, with an immediate, four-year action plan to begin moving forward. That provides a guideline for the future that’s adjusted every three years to reflect new changes in energy markets and generation technologies.
The plan always causes heated debate as different groups push for their preferred energy options, especially with renewable resources and natural gas emerging as cost-effective alternatives to coal over the last decade.
But this time, debate is giving way to confrontation because of the major decisions at stake – choices that could help define New Mexico’s energy future for the next two decades. That battle will unfold in an open public hearing at the PRC in the next few months.
Coal’s inevitable demise
An end to coal is at the heart of everything, something environmental groups have aggressively pushed for over a decade. But even PNM now says that’s virtually inevitable, despite ongoing resistance from some groups.
“It’s where the whole industry is going, in New Mexico and elsewhere,” said PNM Director of Planning and Resources Pat O’Connell.
It’s a matter of market economics, including the emergence of abundant supplies of cheap natural gas, low-cost renewables, radical changes in public electric consumption through energy efficiency programs that have cut demand, and broad deployment of individual solar systems to power homes and businesses independent of the grid. All those things have combined to make massive, centralized coal plants that run around the clock a thing of the past, O’Connell said.
In fact, those market fundamentals limit the importance of federal policy, including efforts by President Donald Trump’s administration to roll back Obama-era environmental mandates to move away from fossil fuels, said PNM Vice President for Public Policy Ron Darnell.
Indeed, utilities have announced the closure of 17 more coal plants this year alone, including three last month in Texas. With the latest announcements, more than half the U.S. coal fleet has either already been retired or is now slated for closure.
“I don’t believe federal policy will change what we’re seeing in the marketplace,” Darnell said. “We have supplies of natural gas like we’ve never seen before, coupled with declining demand for electricity from energy efficiency and the deployment of solar systems. Those driving trends have been under way a long time, and it’s hard to imagine any federal policy that reverses it.”
That’s still a hard pill to swallow for many, particularly for communities in the Four Corners Area that have depended on coal mining and coal-fired power plants for jobs and income.
Six state legislators from San Juan County are opposing PNM’s integrated resource plan given the immense economic costs for their communities. They say San Juan’s closure alone would throw about 1,500 people out of work and eliminate about $50 million in local and state taxes annually.
New Mexico Industrial Energy Consumers also opposes the San Juan closure. It warns that hundreds of millions of dollars in “stranded costs,” or unrecovered investments, left behind after abandoning the coal plants, plus the price for environmental remediation and building new natural-gas and renewable generation, could lead to “rate shock” over the next decade. It says PNM has not shown that ending its coal generation is cheaper than continuing to run the plants for another 20 years or more, particularly since the utility invested in environmental controls at those facilities in recent years to continue operating in compliance with federal mandates.
“PNM sold us on those environmental improvements as long-term investments for the foreseeable future,” said Peter Gould, chief counsel for Industrial Energy Consumers. “We want to see a glide path to eventually getting out of coal that takes advantage of the 20 or 30 years of life left in those plants, not just jump off a cliff.”
On the other side are environmental groups, all of whom support the pullout from coal.
One group, Santa Fe-based New Energy Economy, wants an immediate departure from Four Corners rather than waiting until 2031. It also wants PNM to absorb the costs for its stranded assets, foreshadowing a bitter fight with PNM, which assumes full cost recovery in the integrated resource plan. And the group opposes the utility’s plan to gain ownership over another 114 MW of power from the Palo Verde Nuclear Generating Station in Arizona as partial replacement for lost coal-generation.
Most environmental groups are focused on limiting the amount of natural gas generation that PNM will add to the grid after pulling out from coal, since gas is also a carbon-emitting fossil fuel. They want more solar and wind energy instead, plus new battery storage systems to keep electricity flowing when there’s no sun or wind.
But PNM’s plan calls for adding 11 new natural gas plants to the grid by 2036 that can rapidly ramp up and down to meet electric demand, offsetting the intermittence of solar and wind.
“We’re concerned about using gas plants to replace the coal plants,” said Chuck Noble, attorney for the Coalition for Clean Affordable Energy. “We could eventually get to 100 percent renewable energy on the grid by using new storage technologies, especially as that technology improves. Under PNM’s plan, we could end up building gas plants that we no longer need in a few years.”
PNM issued a request for proposals in late October for 456 MW of new electric resources to replace coal generation going forward. That’s an “all-inclusive” RFP that welcomes proposals for battery storage and renewables, apart from natural gas, O’Connell said.
But choosing the right energy mix will likely become highly contentious, not just in hearings on the integrated resource plan, but in future PRC proceedings to approve new additions to the grid. PNM says it must guarantee the reliability of all new systems, making 24/7 resources like nuclear power and natural gas critical compared with as-yet-unproven technologies like battery storage.
“We need flexible, dispatchable resources that can provide electricity around the clock,” O’Connell said.
Those issues will be debated for years to come as PNM constructs a new, coal-free electric system, said Steve Michel, chief counsel for Western Resource Advocates.
“We can’t allow all this crossfire to turn the IRP into some mega proceeding,” Michel said. “At the end of the day, all these issues will continue to be litigated in future cases.”