PNM files application to transfer 13% ownership in Four Corners Power Plant to NTEC
AZTEC — The state’s largest electric utility has filed an application with the New Mexico Public Regulation Commission to abandon its interest in the coal-fired Four Corners Power Plant located in Fruitland. The move is part of PNM's bid to become coal-free by 2024.
Public Service Company of New Mexico filed this application on Jan. 8 as it seeks to sell its 13% interest — or 200 megawatts of generation capacity — in the power plant to Navajo Transitional Energy Company for the sum of $1. This would mean that NTEC would take over PNM’s ownership interest in the power plant in 2024. NTEC has already acquired a 7% interest in the power plant from El Paso Electric.
PNM's shareholders have also agreed to pay NTEC $75 million. This will satisfy the terms of the coal-supply agreement with NTEC, which owns Navajo Mine. Navajo Mine supplies coal to the Four Corners Power Plant. While NTEC will be responsible for future operational and capital requirements after 2024, PNM will retain its obligations for plant decommissioning and mine reclamation.
"PNM has a unique opportunity to exit from its participation in the Four Corners coal plant in 2024. This early exit is six and one-half years prior to the conclusion of the current coal supply agreement in 2031," said PNM Vice President of Generation Tom Fallgren in the application.
He said PNM performed a cost-benefit analysis in its 2020 integrated resource plan looking at the impact of leaving the Four Corners Power Plant in 2024 and in 2028.
"The abandonment and securitization of the plant under the Energy Transition Act provides cost savings to PNM customers and supports a just transition for the local community," he said. "Following on the approval to shut down the San Juan Generating Station, the exit from Four Corners is PNM’s next and final step in transitioning away from coal-fired generation to more sustainable energy resources. If PNM’s application is approved, PNM will no longer have any coal resources in its generation portfolio after 2024."
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In its application, PNM seeks to recover $300 million of undepreciated investments into the Four Corners Power Plant through a low-interest bond process known as securitization. This was authorized in the Energy Transition Act that was passed in 2019 and has only been applied to one other case in New Mexico — PNM’s application to abandon the San Juan Generating Station.
In the application, PNM states that the transfer of ownership to NTEC will result in $30 million to $300 million in savings for PNM customers. It will also provide more than $16 million in Energy Transition Act funding to three state departments to assist with economic development and worker training efforts in northwest New Mexico.
The PRC has previously capped the surface mine recovery costs, which means PNM cannot ask for financing through securitization to cover those costs. Any additional costs for mine reclamation will be borne by PNM shareholders. However, PNM has asked for securitization for plant decommissioning.
Unlike the San Juan Generating Station case, PNM is a minority owner of the Four Corners Power Plant and does not oversee its operations. Additionally, PNM’s transfer of ownership to NTEC cannot result in the plant closing early.
It is, however, a necessary step as PNM is undergoing a merger with Avangrid. During a Jan. 11 conference, officials said Avangrid has no intention of owning any coal-fired generation, and the transfer of the 13% ownership in Four Corners Power Plant to NTEC was necessary for the merger to move forward.
One difference between PNM’s application to abandon the Four Corners Power Plant and its application to abandon the San Juan Generating Station is that it has not filed an application for replacement resources for the Four Corners Power Plant as it did in the San Juan case. PNM states that it will send out a request for proposals for replacement resources in the first quarter of 2021.
New Energy Economy files to intervene
PNM will face opposition in its application for financing. New Energy Economy has filed to intervene in the case. The environment and consumer advocacy group will likely argue that PNM should not be granted the full amount of financing requested because, New Energy Economy alleges, not all of the investments it is seeking to refinance were prudently made.
New Energy Economy further alleges that PNM filed the application before the legislative session could start to avoid proposed amendments to the Energy Transition Act that would give the PRC more authority to deny securitization for imprudently made investments into power plants.
"How can the investor-owned utility be entitled to be reimbursed by ratepayers for 100% of the costs it incurred without any consideration of whether it would be of any benefit to its business or to the ratepayers?" Mariel Nanasi, executive director of New Energy Economy, stated in the press release. "It cannot have been the intent of the legislature, in passing the ETA, that PNM stick all of this on ratepayers’ electric bills.”
Economic impact of Four Corners Power Plant
The Four Corners Power Plant, which is operated by Arizona Public Service Company, employs approximately 700 people and the majority of workers are members of Navajo Nation.
Fallgren states in the application that Navajo Nation receives $40 to $45 million in royalties and taxes "generated as a result of the operations of Navajo Mine in supplying coal" to Four Corners Power Plant. The application states that is an estimated 23.9% of the tribe's Fiscal Year 2021 general fund revenue.
Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at firstname.lastname@example.org.
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