Copyright © 2020 Albuquerque Journal
Public Service Company of New Mexico could exit the coal-fired Four Corners Generating Station near Farmington in December 2024 under a potential deal with the Navajo Transitional Energy Co. to acquire PNM’s 13% stake in the plant.
Negotiations began a few months ago and could conclude in early November, said Tom Fallgren, PNM’s vice president for generation. If a final deal is reached, PNM would exit Four Corners six years ahead of its scheduled departure in 2031, when the plant’s current coal contract and co-ownership agreements expire.
The state Public Regulation Commission would need to approve any final deal.
“We’re looking at a December 2024 exit by PNM with the idea that NTEC would take over all rights and obligations under PNM’s share in the plant,” Fallgren told the Journal. “… It’s not a done deal, but we’re in the final stages, and we hope to complete it in a couple of weeks.”
PNM’s parent firm, PNM Resources, could pay up to $75 million to NTEC for breaking its current contract obligations at Four Corners, including purchase of coal through 2031 from the nearby Navajo Mine, which supplies the plant. NTEC acquired the mine from BHP Billiton in 2017.
NTEC CEO Clark Moseley informed his own board and Navajo Nation leaders – including Navajo President Jonathan Nez and Navajo Council Speaker Seth Damon – about the negotiations in an Oct. 16 email obtained by the Journal.
“We will receive a total of $75 million from PNM as a negotiated resolution of all existing obligations between PNM and NTEC,” Moseley said in the email. “PNM will remain fully liable for its percentage responsibility of future plant decommissioning liability and in 2024, an audit will be performed to ensure that PNM is fully current on funding its portion of the final mine reclamation expenses.”
PNM Resources shareholders would pay the entire fee at no cost to utility customers, Fallgren said, although he declined to discuss the amount.
“I can’t confirm or deny the dollar amount, but I can confirm there’s a significant payment,” Fallgren said.
PNM customers could collectively save about $100 million on their bills through the utility’s early exit from Four Corners since the company would replace expensive electricity from the plant with cheaper renewable resources, said PNM spokesman Ray Sandoval.
PNM ratepayers would still pick up the costs of pending liabilities after 2031, plus the cost of replacing Four Corners electricity with other resources. But those expenses would be paid by consumers anyway – even without an early exit – under New Mexico’s Energy Transition Act.
The ETA requires PNM to replace all its coal with renewables and carbon-free generation by 2045. But it also allows the utility to recover its investments in abandoned fossil fuel plants through bonds that would be paid off by ratepayers, although PNM must forgo all profits on those investments when using the bonds.
The bonds could include about $10 million in economic development assistance for the Four Corners area to offset the region’s loss of jobs and tax revenue, similar to the $40 million in local economic development assistance included in PNM’s plan to exit the nearby San Juan Generating Station in 2022, which the PRC approved last summer.
“Early exit from Four Corners helps us transition to renewables faster,” Sandoval said. “This deal gives shareholders skin in the game by paying the exit fee and by forgoing any profits on previous investments in the plant. And it would provide at least $10 million in economic development assistance while also providing our customers with about $100 million in savings.”
Early exit would also meet conditions included in PNM Resources’ recently announced plan to merge with Avangrid, which requires it to have a plan in place before the merger deal closes next year, although PNM says it’s been seeking earlier departure options at Four Corners since 2018.
Deal under fire
Environmental organizations, however, criticized the deal – not because they oppose PNM’s early exit from Four Corners, but because PNM is simply transferring its coal generation to the Navajo Nation, leaving the plant up and running and deepening Navajo reliance on fossil fuels.
“This is PNM dumping a toxic asset onto the Navajo Nation,” said Sierra Club Rio Grande Chapter Director Camilla Feibelman. “NTEC’s leaders are investing in coal at a time when coal is failing to compete across the country. It’s a dying industry.”
The Institute for Energy Economics and Financial Analysis, a think tank that promotes clean energy, said NTEC is pursuing a bad investment in exchange for a “short-term windfall” of $75 million and the hope of keeping the Four Corners plant open as long as possible. But in the long term, it could cost the Navajo Nation a lot more because of the plant’s high operating cost, IEEFA said in a report published on Oct. 23.
Standard & Poor’s estimates operations and maintenance expenses at Four Corners reached $43 per megawatt hour of electricity produced from 2016-2019. In comparison, PNM has signed deals ranging from $18.65 to $27.35 per MWh for new solar facilities that will soon replace the San Juan Generating Station.
In addition, according to the Oct. 16 email from NTEC’s CEO, PNM and the Navajo entity unsuccessfully tried to get two other companies to acquire PNM’s stake in Four Corners before NTEC agreed to acquire it. And, although NTEC says it will continue to seek a third party to take over that electricity generation before 2024, the failure to previously reach an agreement with other companies dampens those prospects, said IEEFA analyst Karl Cates.
“We’ve said for a long time that the power plant is not a good investment for anybody,” Cates told the Journal. “It will bleed the Navajo Nation in the long term, and it could still close ahead of schedule depending on what other plant co-owners decide.”
Jobs, votes at stake
Arizona Public Service Co. is owner and operator of Four Corners, with a 63% stake. Salt River Project owns 10% and Tucson Electric Power 7%, and both utilities want to transition out of coal. NTEC itself already also owns a 7% stake, which would grow to 20% if it acquires PNM’s share.
Finding a third party to acquire PNM’s electricity would give NTEC a voice “by proxy” in future plant decisions, potentially allowing NTEC to ward off any shutdown before 2031, Cates said. That’s necessary, because even with its current 7% stake, NTEC can’t vote on plant decisions because it owns the Navajo Mine, which supplies Four Corners, creating a conflict of interest.
NTEC is owned by the tribal government but run independently by a non-Native executive team in Colorado. It has doubled down on coal in recent years, acquiring the Navajo Mine in 2017, its current 7% stake in Four Corners in 2018, and three coal mines in Wyoming and Montana last year.
It also tried to keep the Navajo Generating Station and Kayenta Mine in Arizona open but failed to find new operators before Salt River Project shut them down in 2019.
The Navajo Nation wants to preserve the jobs associated with the coal plants, including about 800 at Four Corners and the Navajo Mine, about 80% of which are held by Navajo workers. It’s unclear whether top Navajo leaders including President Nez and Speaker Damon support NTEC’s negotiations with PNM. Neither responded to email inquiries from the Journal.
But Navajo Nation Council Delegate Rickie Nez, who represents San Juan and five other Navajo chapter communities, said Four Corners is critical to the economy and local workers, and keeping the plant running at least through 2031 provides time to prepare the community as the electric industry transitions to renewables over time. That’s especially important, given the 2019 shutdown of the Navajo Generating Station and Kayenta Mine, which provided 2,300 direct and indirect jobs, and PNM’s upcoming abandonment of San Juan, which currently supports some 1,500 direct and indirect jobs, Nez said.
“It is understood there is a move to transition in the industry, but we must do it in a thorough and timely way where there is consideration of realistic opportunities that minimizes any negative impact to the skilled Navajo workforce and local Navajo communities,” Nez told the Journal in an email.