Copyright © 2013 Albuquerque Journal
Public Service Company of New Mexico, environmentalists and renewable-energy advocates are gearing up for what could be an intense debate over the fuels that will replace coal-fired electricity at utility’s San Juan Generating Station.
PNM struck an agreement in principle in February with the New Mexico Environment Department and the U.S. Environmental Protection Agency to shut down two of the coal plant’s four generating units to comply with federal haze regulations.
That agreement still must be formally approved by the state and federal agencies in public hearings. The process will begin with a two-day review by New Mexico’s Environmental Improvement Board Sept. 5-6 in Farmington, followed by the launch in October of a yearlong EPA review process.
In addition, in December, PNM will file its plan with the state Public Regulation Commission, which also must sign off on the shutdown, approve the fuels that will replace the coal units, and eventually ratify rate hikes to allow PNM to recover costs associated with the changes at San Juan.
In general, almost all parties involved in the process support the San Juan overhaul. But sharp differences are emerging over the mix of fuels that PNM would procure to make up for the shuttered coal units.
‘Real sticking point’
“That part will probably be the real sticking point at the PRC, because everyone wants to get their own (preferred fuel) in there,” said PRC Commissioner Pat Lyons. “There are a lot of big decisions coming down, so we’re trying to stay on top of it all.”
PNM executives say they want to replace the coal with a new, natural-gas generating plant at the same site, plus additional electricity from the Palo Verde Nuclear Generating Station in Arizona.
But environmentalists and alternative-energy advocates say the company should seize the opportunity to move away from fossil fuels and add more wind- and solar-generated electricity.
The utility must make up for 340 megawatts of electricity that it will lose at San Juan. PNM operates the plant and owns about 46 percent of its output, or about 790 MW of the station’s total 1,701 MW net generating capacity. The rest of the plant’s output is held by eight other owners, which include local counties, municipalities and power companies.
The amount PNM receives from the plant accounts for about 60 percent of the utility’s total electric generation in New Mexico. The company supplies power to about 500,000 customers in the state.
Under the February accord, PNM agreed to shut down Units 2 and 3 at the plant, which together produce 838 MW of electricity.
PNM’s share of that lost output equals roughly 418 MW. Since the utility only has agreed to forego a maximum of 340 MW of coal from its stake at San Juan, PNM now proposes to buy 78 MW more of output from one of the remaining units at the plant.
That would bring lost output down to the 340 MW cap. The company would then make up for that lost generation by building a 150-200 MW natural gas “peaking plant,” which could provide electricity for New Mexico consumers when electric demand peaks on hot summer days. It also would add 135 MW to its New Mexico consumption from Unit 3 at the Palo Verde nuclear plant.
The company owns 135 MW of output in each of Palo Verde’s three generating units, but it currently only consumes that output from Units 1 and 2 and then sells the remaining 135 MW of electricity from Unit 3 on the wholesale market, said Ron Talbot, PNM senior vice president and chief operating officer.
“That’s an asset that PNM already controls, so we should give that consideration,” Talbot said.
But some environmentalists say they firmly oppose parts of PNM’s plan, particularly its intention to acquire 78 MW more of coal-generated electricity at San Juan.
Objecting to mix
“PNM plans to retire two coal units at San Juan Generating Station in 2017, and then buy 78 MW more of coal from Unit 4, so while the country is moving towards renewables, PNM is planning to go backwards,” said New Energy Economy Executive Director Mariel Nanasi in an email to the Journal. “In comparison, Nevada is closing all its coal … and 40 percent of its replacement power will be from renewables.”
David Van Winkle, energy chairman for the New Mexico Coalition for Clean Affordable Energy and a board member at New Energy Economy, said PNM has taken “a step in the right direction” with its San Juan plan, but it needs to more aggressively add renewables to the system.
“PNM has said it will work (with the community) over the next several years to figure the right mix to replace the coal units, but it’s also said it will buy 78 MW more of coal from Unit 4 and buy more nuclear and natural gas,” Van Winkle said. “We’re concerned, because it kind of seems like PNM has already made some decisions.”
But Talbot said buying more renewables and forgoing the extra 78 MW of coal from Unit 4 would drive costs way up. In large part, that’s because wind and solar generation only provide intermittent electricity when the wind is blowing and the sun is shining.
Driving up costs
That means the company still would need to draw on resources such as natural gas and nuclear power when renewable energy isn’t available, or else spend an exorbitant amount on alternative fuels to provide enough electricity to replace all the lost coal capacity.
In any case, PNM is not acquiring any “new coal” at San Juan, Talbot said. Rather, it’s “swapping” output with other owners to stay within the total 340 MW shutdown the company agreed to.
“The replacement power must be assets that can pump out energy when we need it most,” Talbot said. “The issue with renewables is we can’t count on them at peak load … We’ll run every realistic scenario for replacement generation, but in my view, the most cost-effective investment will be gas-peaking assets and nuclear energy.”
As it stands now, the company estimates that shutting Units 2 and 3, plus adding more pollution controls to the remaining two units as outlined in the February accord, will cost up to $430 million.
That could mean an extra $70 charge per year for New Mexico customers, representing about a 15 percent rate hike when PNM seeks cost recovery at the PRC.
In addition, the company is already putting more renewables on its system every year under the state’s renewable procurement plan.
The discussion over replacement power is unlikely to affect the EPA and state Environment Department reviews, which mostly focus on the overall plan to shut down two San Juan units and add pollution controls to remaining ones.
But it could well bog down the PRC process, which comes after the state and federal agencies sign off on the plan.
Still, PNM will get support from other organizations.
“The state has already gone out of its way to address environmental concerns with the two-unit shutdown, and we need to look at the impact on rates,” said Peter Gould, general counsel for Industrial Energy Consumers. “If they (environmentalists) insist that a big part of replacement power be renewables, then I think they’re being unreasonable.”
PNM says it is open to discussion.
“We’re a creature of public policy, so what the state decides, we’ll implement,” said PNM Resources Chairman, President and CEO Pat Vincent-Collawn.
“If through the public process it’s decided that some replacement should be renewables, we’re open to it. But we need to balance environmental issues with affordability and reliability of the electric system.”