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WRA backs San Juan agreement

You have probably read about a recent agreement to resolve issues around San Juan Generating Station.

This agreement has been submitted to the New Mexico Public Regulation Commission for approval, and has the support of Public Service Company of New Mexico, consumer, business and environmental advocates, including the organization I represent, Western Resource Advocates. I would like to explain WRA’s support.

The San Juan Generating Station is a four-unit coal-fired power plant near Farmington with multiple owners. Two units are scheduled to close in 2018 to address regional haze issues. The PRC case involves PNM’s request to retire its share (418 megawatts) of the two closing units, and reacquire a portion (197 megawatts) back in the two units that are not closing.

The agreement would approve PNM’s requests with three important conditions. These conditions provide a much better environmental outcome than anything possible through litigation.

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To understand our view, it’s important to recognize that the environmental situation at San Juan Generating Station will be the same whether or not the commission approves PNM’s requests: Two units will close and two units will keep running. PNM has hundreds of millions of dollars of unrecovered investment in the remaining San Juan units, and closing those units today would trigger hundreds of millions more in unfunded decommissioning and mine reclamation costs.

Rather than suffer the financial consequences of a further plant closure, we believe PNM would seek to acquire any denied San Juan capacity through an affiliate company, as a shareholder asset, in order to keep the plant running and protect its investment. PNM has already done this with 65 megawatts the other plant owners did not want. If a shareholder acquisition happens, then that portion of San Juan would be serving wholesale customers and not be regulated in New Mexico, making the plant much more difficult to close in the future.

The agreement we have reached recognizes the reality of the situation and builds a strong environmental outcome from that reality. It does this by establishing a 2018 PRC case to determine the San Juan Generating Station’s future, by restricting the ability of PNM shareholders to perpetuate the life of the plant, and by matching over one-third of PNM’s San Juan output with new renewable energy.

The agreement requires PNM to file a 2018 PRC case to determine the extent to which San Juan should continue operating after 2022. Absent this agreement, WRA and others would have to petition the commission to commence such a case, and the burden would be on us to change the status quo.

The year 2022 is important and appropriate because the coal supply and San Juan Generating Station ownership agreements expire in 2022. It is also the first year EPA’s Clean Power Plan requires CO2 reductions at San Juan. By having the case filed in 2018, we provide ample time to develop cleaner energy alternatives that can support further San Juan closures in 2022.

The agreement prohibits PNM from using its unregulated affiliates to acquire and uneconomically perpetuate the life of the plant. If such a restriction were in place today, the economic viability of San Juan could be very different. PNM has agreed that neither it, nor its affiliate companies, will acquire any more unregulated coal-fired generation, ever.

Starting in 2020, the agreement requires PNM to match every megawatt-hour produced from the 197 MW of coal capacity it is reacquiring with one MWh of new renewable energy. PNM is to accomplish this matching with the purchase of credits – which is the way energy markets establish renewable energy ownership and guarantee that renewable energy has been produced.

This agreed-to renewable procurement is in addition to PNM’s 20 percent renewable energy requirement in 2020 under New Mexico law. Over 400 MW of wind or solar power, from new facilities, will be needed to generate the renewable energy required by the agreement – 1.4 million MWh per year.

WRA’s goal throughout the San Juan case has been to reduce PNM’s reliance on dirty power and advance its use of clean energy as quickly as possible. We believe the agreement before the PRC accomplishes this goal in a way that best protects our environment and addresses the many competing interests and concerns surrounding San Juan Generating Station.

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