Copyright © 2022 Albuquerque Journal
Public Service Company of New Mexico is seeking regulatory approval to continue running one of two operating units at the coal-fired San Juan Generating Station for an extra three months this summer to avoid rolling blackouts.
Both of San Juan’s two generating units are scheduled to close on June 30. But PNM has negotiated a new agreement with plant co-owners to postpone the shutdown of one of them, unit No. 4, until Sept. 30, said Tom Fallgren, PNM vice president for generation. That would substantially reduce the threat of blackouts during peak summer demand in July and August, when consumers collectively blast their air conditioners.
Without the extension, PNM may be forced to shut off electricity to customers for two-hour intervals on a rotating basis among neighborhoods in its service territory.
That’s because four new solar plants being built by contract developers to replace San Juan when the plant closes won’t come fully online until next year, thanks to supply chain problems caused by the global pandemic that set back construction timelines on all four projects. In addition, with other states and utilities conserving their own electricity generation to prepare for another potential season of searing summer heat, there will be little electricity available for purchase on the regional wholesale market for PNM to make up for power deficits in New Mexico.
PNM requested Public Regulation Commission approval for the San Juan extension early Thursday afternoon, even before collecting final signatures on the proposed agreement from other plant co-owners, Fallgren said.
“We’re filing it now with the PRC as a ‘verbal’ agreement while the other utilities get final signatures from their boards,” Fallgren told the Journal. “The ink isn’t even dry yet, but we need to move as quickly as we can.”
A rapid PRC response is critical because, once the regulators receive the signed agreement, likely early next week, commissioners will have only about five weeks to approve or reject it, based on a timeline set by Westmoreland Coal Co., which owns the nearby San Juan Mine that supplies the plant, Fallgren said. The utilities must confirm a short-term extension of their coal contract by March 25 or Westmoreland will immediately cease mining operations and lay off its workers to prepare for the currently scheduled June 30 shutdown of San Juan.
The other San Juan co-owners also cannot wait beyond March 25 to begin securing alternative summer energy supplies for their own grids if the PRC fails to act on the extension proposal.
“We didn’t make up the March 25 deadline – that comes from Westmoreland,” Fallgren said.
Reinforcing reserve margin
Without the unit 4 extension, PNM’s “reserve margin” of internal generating capacity will drop to a negative 3.4% in July and August, meaning it won’t have enough electricity on its own grid to meet even normal summer demand, much less abnormal spikes from extreme heat.
PNM generally strives to retain a 12% reserve margin on its system to reliably keep electricity flowing in any situation. And, with climate change now frequently creating such extreme weather events as heat waves, massive wildfires and extended drought that are taxing grids across the western U.S., PNM says its reserve margin should actually increase to 18% or more going forward.
By extending unit 4 through the summer, PNM’s reserve margin would grow to 9.8%, Fallgren said. And additional generation from the unit that PNM’s parent company, PNM Resources, normally sells on the wholesale market would also become available for New Mexico consumers, if needed.
Counting that additional capacity, PNM’s reserve margin would climb to about 12.2%.
“With that, we won’t be in any worse shape than we’ve been in previous summers,” Fallgren said.
The other San Juan generating unit now operating at the plant, unit No. 1, must shut down as scheduled on June 30 because PNM shares electric output from it with Tucson Electric Power, which must agree to any extension. But Tucson Electric already added a new gas plant to its grid to replace San Juan and has no interest in extending unit 1 operations, Fallgren said.
PNM shares output from unit 4 with three other utilities that all agreed to extend that unit’s operations.
Savings and bonds
In 2020, the PRC approved San Juan’s closure and solar replacement resources as part of PNM’s efforts to comply with the Energy Transition Act, which requires the state’s public utilities to convert their grids to 50% renewables by 2030, 80% by 2040 and 100% carbon-free generation by 2045.
At that time, PNM estimated that average residential customers would save nearly $7 per month on their bills after plant closure because it’s replacing expensive coal generation with much cheaper solar power. Some of those savings will begin appearing on customer bills in January 2023 after PNM “trues up,” or prorates, its annual fuel costs.
And, now, if the PRC approves the three-month unit 4 extension, there will be additional savings this summer, because, with that unit still generating electricity, PNM is less likely to buy expensive power on wholesale markets to make up for power shortages.
“We’re running the models on costs now, but we’re expecting several million dollars in savings,” Fallgren said.
When the PRC approved San Juan abandonment in 2020, it also authorized PNM to sell “securitization bonds” to recover its lost, or “stranded,” investments in the plant incurred by closing it more than 20 years ahead of schedule. The bonds, which would be repaid by customers through a surcharge on their monthly bills, are authorized under the Energy Transition Act to provide financial security for the utility to help it facilitate early plant shutdown.
The bonds will allow PNM to recover about $320 million in stranded investments, while also raising $40 million for economic development in local communities in the Four Corners area impacted by the plant closure, and to pay for severance and job training assistance to laid-off workers.
PNM expects to sell the bonds some time after it files its next rate case in December. But PNM said Thursday that it will immediately make the $20 million earmarked for worker severance and job training available to all laid-off plant and mine employees.
Given the threat of rolling blackouts this summer, the PRC will likely be receptive to a short-term San Juan extension. Two commissioners, Stephen Fischmann and PRC Chair Joseph Maestas, told the Journal last week that continuing coal-plant operations through the summer may be the best immediate option available to avoid power shortages.
Most environmental groups would likely be supportive, as well, said Steve Michel of Western Resource Advocates.
“If that’s what’s required to avoid service disruptions this summer, then we wouldn’t oppose it,” Michel told the Journal. “I can’t speak for other organizations, but I believe that’s the general consensus among environmental groups, at least the ones we’ve talked with.”
However, Western Resource Advocates and others may push PNM to sell the securitization bonds immediately, rather than wait until after filing its rate case in December, because interest rates are expected to rise substantially this year, increasing bond-repayment charges on customers’ bills.
“A delay likely means higher costs for the next 20 years,” Michel said. “That’s because, with interest rates rising, the longer PNM waits, the higher the cost of issuing those bonds will be.”