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Regulators face tough call in coal replacement

An O&M field technician walks through a photovoltaic array at the Albuquerque Solar Energy Center at Reeves Generating Station in 2011. (Pat Vasquez-Cunningham/Albuquerque Journal)

ALBUQUERQUE, N.M. — The state Public Regulation Commission has entered the final weeks of a yearslong effort to replace the coal-fired San Juan Generating Station with alternative sources of energy, but the body still faces complex issues in choosing the right mix of replacement resources.

PRC hearing examiners Anthony Medeiros and Ashley Schannauer released a nearly 200-page recommendation in late June that offers different options for the five-member commission to choose from.

The examiners did recommend a “preferred” energy portfolio that would completely replace San Juan with solar energy and back-up battery storage. But they laid out a series of fundamental considerations the commission must ponder to comply with the state’s new Energy Transition Act, which requires that Public Service Co. of New Mexico derive 80% of its electricity from renewable resources by 2040 and 100% carbon-free generation by 2045.

That includes consideration of the impact on the Four Corners community, which has relied on the massive coal plant as an economic mainstay for half a century, as well as the environmental benefits of different alternative resources, the reliability of the electric generation that ultimately replaces San Juan, and the costs to ratepayers across New Mexico. How the commissioners choose to balance those interests and concerns will dictate the type of new generating resources they select, where new power plants will be located, and what costs PNM consumers will bear after the utility abandons San Juan in 2022.

Battery containers and solar panels at the PNM Prosperity Energy Storage Project located at Mesa del Sol. (Adolphe Pierre-Louis/Albuquerque Journal)

The hearing examiners – whose role in most cases is to research, analyze and recommend decisions for the commission – took a “hands-off” approach to those policy considerations, said Steve Michel, deputy director of Western Resource Advocates’ Clean Energy Program.

“That’s unusual, and something we haven’t seen before,” Michel told the Journal. “… There’s a lot of moving parts the commission must consider with potentially a lot of different outcomes.”

But whatever the outcome, the commission’s decision will help set New Mexico on a new energy path going forward, said Pat O’Connell, senior policy analyst for WRA’s Clean Energy Program.

“Coal plants are shutting down all over because of their poor economics, the enormous environmental benefits of replacing them and the declining costs of renewables and battery storage systems,” O’Connell said. “In the end, we’ll get a better system in the future than we have today.”

Two approaches

The examiners outlined two “alternative approaches” to choosing replacement resources for commissioners, based on policy goals outlined in the Energy Transition Act, and on traditional factors the PRC weighs when approving new generating systems for public utilities.

The first approach is based on the ETA, which sets certain priorities the state wants commissioners to consider. That includes putting some replacement generation in San Juan County to help offset lost taxes from the coal plant that local government and the region’s Central Consolidated School District rely on, plus hundreds of lost jobs at San Juan and its nearby coal mine.

PNM’s Prosperity Energy Storage Project in south Albuquerque houses a 250-kilowatt battery storage system as back up for a 500-KW solar system to continue providing energy when the sun is down. (Courtesy of Pnm)

Minimizing environmental impacts from new generation is also a central priority to move toward clean energy, along with assessing the reliability of new generating systems.

Costs, however, are of secondary concern in the hearing examiners’ first approach. The ETA says costs must be reasonable, but the examiners say that can be outweighed by the Act’s emphasis on location, environmental impacts, and reliability.

In contrast, the second approach emphasizes the priorities the commission traditionally relies on to approve new resources, with costs and reliability elevated as top concerns, and location and environmental impacts of secondary concern.

Which approach the PRC chooses is up to commissioners, the examiners said.

“The balancing and ultimate selection of a portfolio of replacement resources involves policy considerations that are the province of the commission,” the examiners wrote. “The hearing examiners do not aim or intend to make that decision for them.”

Still, the examiners did recommend a preferred mix of resources for each of the two approaches to guide commissioners. The examiners’ top recommendation is for an all-solar replacement portfolio with back-up battery storage if the commission opts for the first approach of emphasizing location in San Juan County and environmental benefits.

That portfolio, proposed by the Coalition for Clean Affordable Energy, includes 650 megawatts of new solar plants, 300 MW of battery storage, and 24 MW of “demand response” programming, through which PNM enrolls customers in a plan to shut air conditioning off for short periods during peak summer months to save electricity.

CCAE’s portfolio would locate about 45%, or 430 MW, of the total 950 MW of new generation within the Consolidated School District, representing a $447 million investment there that could replace a significant amount of lost taxes from San Juan, the examiners said. The other 520 MW of new generation, totaling at least $430 million more in capital investment, would be located nearby in neighboring McKinley and Rio Arriba counties.

Although none of the projects would employ many permanent workers, they would create about 700 to 1,000 construction jobs.

If the commission opts for the second policy approach emphasizing cost and reliability over location and environment, the examiners propose a mix of solar generation, batteries and natural gas as the “least-costly” energy portfolio discussed by the 26 parties that intervened in the replacement-power case, which included a week of hearings in January. That option, proposed by the Sierra Club, calls for a 200 MW natural gas plant to be built in the Consolidated School District, representing a $156 million investment there. It also includes 520 MW of solar generation and batteries in McKinley and Rio Arriba counties, and another 40 MW stand-alone battery system in Bernalillo County.

Wildcard possible

Commissioners must make a final decision by Oct. 1. They could opt for any of the replacement power portfolios analyzed by the examiners, or select a completely different mix of resources based on various other proposals discussed in the hearings.

That includes an original proposal by PNM as its preferred portfolio, which called for construction of a 280 MW natural gas plant and a small, 20 MW solar facility in the Consolidated School District, representing a $189 million investment there. It also called for 420 MW of solar generation and batteries in McKinley and Rio Arriba counties, plus an additional 70 MW of battery storage in Bernalillo County.

An Ecoult worker services batteries in one of the containers at PNM’s Prosperity Energy Storage Project at Mesa del Sol in 2011. (Adolphe Pierre-Louis/Albuquerque Journal)

The examiners said CCAE’s all-renewable proposal is the preferred, No. 1 choice for meeting most of the ETA priorities of location and environment while still accounting for reliability and reasonable cost.

But PNM says the CCAE portfolio could cost ratepayers much more than CCAE has estimated, and that its heavy reliance on battery storage with no new natural gas generation for back-up power could seriously jeopardize grid reliability.

“It overlooks the critical reliability considerations that PNM must meet to provide 24/7 power that our customers expect,” PNM Vice President of Generation Tom Fallgren told the Journal. “Reliable electricity is vital to our daily lives and the economy.”

Reliability central

Reliability was a central part of the hearings, and of the examiners’ recommended decision, since battery storage will be integrated onto PNM’s grid for the first time when replacing San Juan. PNM says appropriate reliability standards call for limiting the occurrence of “load shed” – or lack of available power to meet peak demand – to one incident every five years, at best. But with 300 MW of battery storage and no new gas back up, CCAE’s proposal raises the potential frequency to 3 occurrences every five years, or 300% more than PNM’s portfolio proposal.

“This means if the CCAE proposal is adopted, when temperatures reach over 100 degrees in a not too distant summer and energy usage is at its highest, customers are three times more likely to experience a power outage,” Fallgren said.

Back up power is critical as the grid becomes more renewable dependent, given the intermittency of solar and wind generation. Without more consistently-available base load power offered by natural gas as an alternative to coal – plus the learning curve associated with integrating batteries into the system for the first time – PNM could be forced to buy more expensive power on the wholesale market. And that, in turn, will drive up costs for CCAE’s portfolio, Fallgren said.

CCAE has estimated its proposed portfolio would cost an extra $77 million over 20 years compared with PNM’s power replacement portfolio, amounting to about 56 cents more per month for an average residential customer. But PNM says CCAE is greatly underestimating costs through unrealistic assumptions about reliability and renewable integration on the grid.

The Encino solar facility has no back-up battery storage, but future PNM solar plants could include hundreds of megawatts of battery storage If state regulators approve it. (Courtesy of PNM)

“Using a realistic and consistent set of assumptions, the CCAE proposal would cost $242 million more than the PNM recommended replacement plan,” Fallgren said.

A phased-in approach is needed to transition to a fully carbon-free grid, using natural gas as a temporary bridge and steadily integrating renewables and battery storage over time, Fallgren added.

Natural gas opposition

In contrast, CCAE and other environmental groups praised the examiners’ preference for an all-renewable portfolio.

Under CCAE’s proposal, PNM’s grid will reach 40% renewable generation after the utility abandons San Juan in 2022, compared with 34% under PNM’s portfolio, said CCAE attorney Stephanie Dzur. That means PNM would reach the ETA goal of 40% renewables by 2025 more than two years ahead of time, avoiding the need to add more clean energy at that point and saving consumers money.

In addition, it avoids adding more carbon-emitting gas to the system, which reduces the risk of costly stranded assets in the future when PNM must close its gas plants to reach carbon-free generation. And the hearing examiners backed CCAE’s reliability assumptions as reasonable, Dzur added.

“We believe (PNM) is crying wolf,” Dzur said. “In our view, PNM’s plan is the risky one with its continued reliance on natural gas.”

The Sierra Club said the hearing examiner’s recommendations show the ETA transition to a clean economy is working.

“The recommendations show that PNM’s gas-heavy alternative is not necessary,” said Sierra Club Rio Grande Chapter Director Camilla Fiebelman. “We’re urging the commission to adopt CCAE’s proposal.”

In fact, the Sierra Club only offered its alternative proposal of 200 MW of natural gas mixed with solar generation and batteries – which the examiners cited as a possibility for commissioners if they seek lower-cost options – to show that less new gas would be needed than the 280 MW plant PNM proposed in its portfolio, Fiebelman said. Sierra Club actually proposed two other portfolios in hearings that entirely eliminate new gas.

“It was an exercise to show that PNM doesn’t need anywhere near the gas its proposing,” Fiebelman said. “It was just an exercise, and certainly not our preferred alternative.”

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