Republican Gov. Susana Martinez's administration and Public Service Company of New Mexico unveiled details of the agreement Friday. It calls for shutting down two units at the 1,800-megawatt San Juan Generating Station by the end of 2017 and replacing them with a new natural gas-fired plant capable of producing at least 150 megawatts of electricity.
The U.S. Environmental Protection Agency had initially ordered the utility to equip the plant with certain technology to cut pollutants that cause haze and visibility issues in national parks and wilderness areas in the Four Corners region. The order sparked a round of appeals and lawsuits by the state and PNM. One of the chief concerns was that the cost of the federally mandated upgrades would result in higher electric bills for customers.
Martinez said in a statement Friday that much work went into crafting a solution that would address air quality, utility rates, conservation of the state's water resources and jobs in the region.
"All along, my goal has been to strike the right balance between the environmental and economic impacts of energy production in the Four Corners," the governor said.
Environmental groups that have been pushing for years to retire the San Juan plant said the planned closure of two of the units marks what they described as a major milestone. Still, they said they would be watching to see whether the pollution controls on the two remaining units will be enough to meet standards under the federal Clean Air Act.
The agreement is based largely on a compromise the state first offered the EPA last year. This time, more megawatts are being retired. PNM also promises to provide more than $1 million in job training funds and has agreed to no layoffs.
The utility also estimates that it would save tens of millions of dollars to outfit the remaining units with pollution controls than had the federal plan been imposed. The EPA plan would have required an investment of more than $850 million, and the utility has said that would have been passed on to ratepayers.
Under the agreement announced Friday, customers could see their bills increase by about $67 a year starting in 2017, according to Ron Darnell, PNM's senior vice president of public policy.
"This is definitely something that allows PNM to continue to provide reliable power at really the lowest cost possible in an environmentally responsible way," he said.
While the agreement just misses the haze requirement by an amount undetectable by the human eye, supporters say it will result in significant reductions in greenhouse gas emissions such as carbon dioxide as well as sulfur dioxide, nitrogen oxide and mercury emissions. In many cases, the percentages would be cut in half.
The agreement is the basis for developing a state implementation plan that would have to be approved by a state regulatory panel and then the EPA. That process could take a year or two, said EPA regional administrator Ron Curry.
"We're hopeful that everybody sees there are more benefits here than anything else," Curry said. "Any agreement like this, where you start as far apart as they were years ago and even months ago, there has to be some give and take."
Environmentalists said closing part of the aging San Juan plant marks the beginning of a shift in a state that has relied heavily on coal-fired power.
Given the extensive infrastructure surrounding natural gas development in the Four Corners, PNM officials acknowledged Friday that it would not be out of the realm of possibility to see a large gas-fired plant in the region in the next 15 years.