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The coal-fired San Juan Generating Station near Farmington will completely cease operations this week, ending 50 years of continuous power supply for Public Service Company of New Mexico and other local and regional utilities.
About 100 workers still employed at the plant will be laid off over the next month.
But the plant’s future remains in limbo, despite plans by the City of Farmington and development company Enchant Energy Inc. to apply carbon capture and sequestration technology to continue running the facility. That’s because, despite four years of negotiations, Farmington and Enchant failed to reach a facility transfer agreement with PNM and other plant co-owners, prompting the city to seek legal action last week to force PNM and the other utilities to sign ownership over to Farmington.
Without a court injunction, the utilities now exiting San Juan plan to demolish the plant in the next few months.
Farmington, which currently owns a 5% stake in the plant, sued the other co-owners in the 11th Judicial District Court in San Juan last Thursday, requesting a restraining order to impede them from dismantling or removing any equipment from the plant, nor let any plant permits expire, while the court considers Farmington’s contention of a legal right to acquire the facility. Under an agreement signed in 2017, Farmington expected to acquire the plant for free and then hand over 95% ownership to Enchant to install carbon capture and run the facility.
The city says the other co-owners failed to negotiate the transfer in good faith, leading to a total breakdown in talks in August. But the exiting utilities, including PNM, say they need – and have yet to obtain – guarantees of protection from future liabilities once Enchant takes over.
Now, with no final agreement and the exiting owners ready to dismantle San Juan, the city says legal action is its only option.
The city wants to retain San Juan to avoid layoffs, create more jobs, and sustain tax income from plant operations.
Farmington Mayor Nate Duckett said the other co-owners have played “hide the ball” in negotiations.
“We go to the mat for our community,” Duckett said in a statement. “Unfortunately, the actions of PNM and the other exiting owners are forcing us to enforce our rights by initiating litigation.”
It’s unclear what specific disagreements have impeded negotiations, and PNM declined to comment on the lawsuit because it has not yet been served by the court.
But the company said Farmington and Enchant haven’t provided adequate assurance of “appropriate protections and financial soundness” in their transfer proposals.
“It’s disappointing that Farmington, days before the closure of the San Juan Generating Station, is now trying to force a transfer without meeting the threshold legal and financial requirements for a valid transfer proposal,” PNM spokesman Ray Sandoval said in a statement. “For more than four years, the current and former owners have devoted time and resources to working in good faith with the city of Farmington and Enchant. PNM has a legal responsibility to ensure no additional liability is taken on for our customers.”
Even if the court orders an injunction, the plant will still cease operations this week, because Westmoreland Coal Co. has already closed the nearby San Juan Mine that supplies the power plant, and the facility will deplete its coal reserves on Wednesday, said PNM Vice President for Generation Tom Fallgren.
“It would be very difficult, if not impossible, to prevent the shutdown,” Fallgren told the Journal. “We’re running out of fuel.”
In addition, postponing demolition plans and meeting government requirements to retain operating permits means more costs for utility co-owners and their customers, Fallgren said.
Two of the original four operating units at San Juan, which opened in 1973, were permanently shut down in December 2017. A third unit closed on June 30, but the final unit remained open through September to ensure sufficient power for customers and avoid potential blackouts during intense summer heat.
With final San Juan shutdown this week, plus loss of electricity next year from expiring leases at the Palo Verde Nuclear Generating Station in Arizona, PNM projects a 450-megawatt shortfall during peak demand in summer 2023. That’s because construction of four solar plants to replace San Juan have been delayed by pandemic-induced supply constraints.
Nevertheless, PNM has procured 200 MW of alternative electric supply to make up for the 2023 shortfall, and it expects to procure the remaining 250 MW by year-end, Fallgren said.
The 100 employees still working at San Juan will be laid off in two tranches, with 49 workers departing this week, and most of the rest leaving after completing final closure tasks next month. Another 149 San Juan Mine workers also are losing their jobs.