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Natural-gas plant project sparks controversy

James Fenton
jfenton@daily-times.com

FARMINGTON — A pending case before state regulators over a planned natural gas-fired power plant has clean energy advocates raising questions over costs associated with the project.

Tom Fallgren, plant manager at the San Juan Generating Station, on Aug. 1 stands in the area in Waterflow where a new natural gas-fired peaking plant is expected to be built. The San Juan Generating Station can be seen in the background.

New Mexico's largest utility, Public Service Company of New Mexico, or PNM, plans to build a $86.8 million natural gas-fired generating station on 13 acres adjoining the San Juan Generating Station, a 40-year-old coal-fired power plant in Waterflow.

If regulators approve the plant, it will supply 80 megawatts of power to help replace power lost through an agreement with federal regulators and the state that required shutting down two of the station's coal-fired units. The station also is undergoing the installation of nitrogen oxide emissions reduction technology on its two remaining units. All the work is expected to be complete by the end of 2017.

Tom Fallgren, plant manager at the San Juan Generating Station, said on Aug. 1 that a new natural gas-fired peaking plant will be built in a parking lot next to the electrical substation seen here in Waterflow.

The "peaking" plant would supply electric power when demand rises, typically when air conditioners are running during summer months, and to replace some of the lost power generating capacity. If approved, the plant would be built and operational by 2018, to ensure additional gas-fired power is available for the high-demand summer season that year.

In December, the New Mexico Public Regulation Commission, or PRC, approved a compromise plan that would allow the utility to bring the generating station into compliance with federal haze regulations.

PNM has asked state regulators to approve the plant's cost of construction and operation in "all future rate-making proceedings," which the utility has said is in accordance with federal law — the Public Utility Holding Company Act of 1935, also known as the Wheeler-Rayburn Act.

Pahl Shipley, PNM spokesman, said in an email that the request would help assure that ratepayers have "certainty" over future costs, which impact what consumers pay.

"PNM's request is consistent with (the federal act) that allows a public utility that is seeking to ask the PRC to establish the future rate-making treatment for the costs of a new generating plant," Shipley said. "In this case, PNM has asked (regulators) to set the initial capital cost at the lesser of $86.8 million or the actual installed cost of the plant. The initial capital cost will decline each year as the plant is depreciated. (The PRC's) approval of the not-to-exceed cost provides customers and investors with certainty as to the costs allowed and the recovery permitted."

However, PNM's request before the PRC includes a Fuel and Purchased Power Cost Adjustment Clause, which ensures that the utility can increase or decrease rates for its customers when and if fuel costs rise or fall.

Shipley said the rate clause is only for fuel — not for capital or operating costs — and price adjustments are made on a quarterly basis.

At the end of June, PNM began its yearlong Integrated Resource Planning, or IRP, process. in which the utility will examine its existing power portfolio as it tries to land on cost-effective rates for its customers.

The utility's IRP plan will be filed with the PRC next year.

The San Juan Generating Station as seen Aug. 1 in Waterflow. PNM has abandoned a plan to create a natural-gas fired power plant in the area after a study showed the anticipated demand would be lower than expected.

Mariel Nanasi, executive director for New Energy Economy, a Santa Fe-based renewable energy advocacy group, has asked the state Supreme Court to overturn the PRC's final order, which was designed  to keep the aging coal-fired power plant operating.

In May, the PRC agreed to take another look at the utility's rates. That case is currently underway.

In a July 22 state Supreme Court filing, Nanasi said the utility is protecting polluting energy sources that result in higher costs to consumers.

Nanasi's group filed a motion to dismiss the proposed natural-gas project with regulators earlier this month.

Nanasi said a pending deal between PNM and Facebook for the utility to provide the social media giant's proposed Los Lunas data center with 100-percent renewable power at a fixed rate for 25 years smacks of favoritism for a business while customers pay higher rates for fossil fuel-based power without any guarantee of price stability.

The San Juan Generating Station as seen Aug. 1 in Waterflow.

"PNM continues to double down on traditional fossil fuel and nuclear extraction rather than invest in renewables, which are cheaper," Nanasi said in an email. "PNM's poor investment choices continue to drive up rates that make it hard for families and small businesses to make ends meet. Average residential rates have increased by more than 55 percent from 2008-2014, with a rate case pending now and PNM promises another one before year's end. Compare this to what PNM has agreed to with Facebook — fixed costs for 25 years at incredibly low prices for abundant New Mexican solar and wind. Who wouldn't want price stability guaranteed knowing that the resources are not hurting the environment?"

The PRC will meet to take up the natural gas plant case Nov. 7. Testimony from parties who wish to intervene in the case is due to the PRC Records Management Bureau in Santa Fe by Sept. 30.

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621.

Tom Fallgren, plant manager at the San Juan Generating Station, said a new natural-gas-fired peaking plant will be built in a parking lot next to the electrical substation seen here on Aug. 1 in Waterflow.