PRC examiner backs PNM coal plant pullout - Albuquerque Journal

PRC examiner backs PNM coal plant pullout

The Four Corners Power Plant is located in Waterflow, N.M. (Susan Montoya Bryan/Associated Press)

Copyright © 2021 Albuquerque Journal

Public Service Company of New Mexico could become completely coal-free in three years if the Public Regulation Commission accepts a hearing examiner’s recommendation to allow PNM to abandon the Four Corners Generating Station in December 2024.

Hearing examiner Anthony Medeiros, who oversaw evidence gathering and public hearings on the issue, released on Friday a “recommended decision” that supports PRC approval for PNM to sell its stake in the coal plant to the Navajo Nation.

Medeiros said the transaction would result in a net public benefit and should be approved.

“The preponderance of the evidence supports a positive finding that the proposed sale and transfer is in the public interest,” Medeiros said.

The PRC’s five elected commissioners will likely make a final decision in December. They can accept or reject the hearing examiner’s recommendation, or add conditions for approval.

Changing hands

Under PNM’s proposal, the Navajo Transitional Energy Co., which currently owns a 7% stake in Four Corners, would acquire PNM’s 13% share in the plant for $1, allowing PNM to exit the facility nearly seven years ahead of its currently scheduled departure in 2031.

NTEC and three other co-owners – Arizona Public Service, the Salt River Project and Tucson Electric Power – would continue operating the facility, possibly through 2031, when the plant’s current coal contract and co-ownership agreements expire.

But under the deal, the plant would move to seasonal operations in fall 2023, reducing electric generation during fall and winter months and producing at full capacity only during peak demand in spring and summer. That could lower the plant’s annual carbon emissions by 20% to 25%.

Customer impact

PNM customers, meanwhile, could save up to $300 million over the next two decades as PNM transitions to cheaper renewable generation, and through use of low-interest bonds for PNM to recover its lost investments, or “stranded assets,” in the plant.

Ratepayers would pay off those bonds over 25 years through a surcharge on monthly bills, costing most residential customers an estimated $1.32 a month. But the utility’s base rates would also immediately drop if the utility abandons the plant, leading to an initial savings of between $8.50 and $9.00 a month for the average customer.

Total net savings over time will depend on the cost of new renewable facilities built to replace PNM’s coal generation from Four Corners. But PNM projects a minimum of $30 million in long-term savings for ratepayers, and possibly up to $300 million.

Abandoning the plant will also help PNM meet state Energy Transition Act mandates, which require public utilities to convert their grids to 100% noncarbon generation by 2045.

Navajo Nation jobs

And the deal with NTEC provides significant assistance to the Navajo Nation, which has been hit hard by coal-plant closures, including the planned shutdown of the San Juan Generating Station next June.

Navajo workers account for nearly all the 700 employees currently working at the generating plant, which is on Navajo land, and at the nearby Navajo Mine, which supplies coal to the facility. In addition, the Navajo Nation earns between $40 million and $45 million annually from royalties at the Navajo Mine – which NTEC owns – plus taxes on mine and plant operations, accounting for nearly 24% of the Navajo Nation’s general fund.

Under the sale contract, PNM shareholders will pay NTEC $75 million for the right to break PNM’s share of the generating plant’s long-term coal agreement with the Navajo Mine. And, the bonds that PNM will sell to pay off its stranded Four Corners assets will raise $16.5 million for local economic development and assistance for plant and mine employees affected by the plant’s eventual shutdown.

Reactions to come

The overall benefits are significant, Medeiros said. They include “substantial savings to ratepayers, reducing PNM’s portfolio emissions, reducing New Mexico and regional emissions through seasonal operations, facilitating the Navajo Nation’s just transition away from coal, and providing affected communities $16.5 million in transition funding,” he said.

Reactions are pending from more than a dozen organizations that participated in the case, which now have until Nov. 22 to file responses, or “exceptions,” to the hearing examiner’s recommended decision.

Many environmental organizations originally opposed PNM’s abandonment proposal,because it only transfers ownership to NTEC without shutting down the plant.

But the agreement among plant co-owners to reduce emissions through seasonal operations helped offset those concerns. And Medeiros has conditioned his recommendation for approval on PNM agreeing to eliminate clauses now in the NTEC contract that obligate PNM to oppose efforts by other co-owners to shut down Four Corners, at least while PNM remains in the plant.

PNM is now reviewing that with NTEC, said Tom Fallgren, the utility’s vice president for generation.

“The purchase-sale agreement was signed by two parties,” Fallgren told the Journal. “We have to renegotiate that with NTEC.”

Bond concerns

Many parties also opposed PNM’s recovery of all its estimated $270 million in stranded Four Corners assets through bonds, which are authorized under the Energy Transition Act as a low-cost mechanism for PNM to fully secure investment recovery when replacing fossil fuels with renewables. Opponents want the PRC to first review the “prudence” of about $130 million of PNM’s previous investments in Four Corners before approving cost recovery from ratepayers.

But Medeiros said the PRC fully retains its authority to review those investments later. If it finds them imprudent, the commission can order PNM to credit the difference back to ratepayers.

Initial response

Fallgren praised the hearing examiner for striking a “delicate balance” among conflicting interests.

“Did each party get what it wanted? Maybe not,” Fallgren said. “But overall, the hearing examiner managed to balance different positions through a good agreement that includes savings for customers, environmental benefits, and protections for the Navajo Nation to help with a ‘just transition’ to renewable generation.”

Two environmental organizations agreed.

Medeiros “got it right,” said Noah Long, the Natural Resources Defense Council’s Western director for climate and energy.

“I think the hearing examiner’s recommended decision shows the PRC has the authority and ability to address complicated issues,” Long told the Journal. “He hit the mark on every major issue.”

Western Resource Advocates attorney Steve Michel said customers will save a lot of money through PNM’s exit from Four Corners.

“We thought the recommended decision was appropriate,” Michel told the Journal. “We estimate that savings over time will reach a minimum of $100 million, and potentially up to $300 million.”

In contrast, New Energy Economy Executive Director Mariel Nanasi said she was disappointed.

“There’s no doubt Four Corners should be abandoned,” Nanasi told the Journal. “But under this proposal, it will continue to burn coal, not close it down.”

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