The end: City says San Juan Generating Station retrofit project no longer feasible

Farmington cites arbitration loss as a ‘catastrophic blow’ to the carbon capture project with Enchant Energy

John R. Moses
Farmington Daily Times

FARMINGTON – The City of Farmington announced it has ended the plan it began years ago to acquire the San Juan Generating Station and run it with a partner.

The announcement Dec. 20 followed a loss during arbitration hearings Dec. 14 that the city called a “catastrophic blow” to the partnership between it and Enchant Energy.

Farmington Mayor Nate Duckett said a strategy employed by Public Service Company of New Mexico (PNM) and other plant owners to dismantle key parts of the facility during decommissioning work got the go-ahead from a panel of arbitrators – a panel the city had hoped would instead put a hold on equipment auctions.

“Given PNM’s and the other co-owners’ actions to quickly dismantle SJGS, and the panel’s recent decision to allow them to do so, we have arrived at a point where those actions directly undermine the viability of successful implementation of the Carbon Capture Project,” Duckett said in the press release issued by the city Tuesday afternoon.

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 “For a region already facing economic challenges, we have worked diligently to keep SJGS open with carbon capture,” Duckett wrote. “Unfortunately, profit and the (Energy Transition Act)  have taken precedence over the livelihoods of real people and families.  It is with a heavy heart that we withdraw from the arbitration efforts and Carbon Capture Project at SJGS.”

Nate Duckett

Duckett announced the decision hours after a morning closed-session conference with the City Council, the CEO of Enchant Energy and the city’s legal team.

PNM demanded the matter go to arbitration after the City of Farmington brought suit in state court in September to stop the auctions and try to get talks underway with other plant owners so Farmington could gain control of the power station and run it with Enchant Energy.

PNM and the other owners had moved the matter to federal court before it finally went into the arbitration process.

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On Dec. 14 a three-member arbitration panel rejected the city’s second try to halt auctions of electrical components. The batch in an auction that closed  Dec. 20 included transformers and motors, components that allowed power to flow from the generating station.

On Monday, PNM threatened legal action against the city if it continued to delay the decommissioning of the generating station and its legal actions cost the utility and other plant owners money.

Enchant says its here to stay

Enchant Energy and the city joined forces in 2019 in an effort to keep the San Juan Generating Station open after 2022.

“We’re still part of the Farmington community, and will remain so,” said Enchant Energy CEO Cindy Crane.

Cindy Crane

Crane said the work done toward reopening the power station, including a successful Front-End Engineering and Design (“FEED”) Study that defined the scope of a project utilizing large-scale decarbonization at a facility like SJGS, was “very successful.”

“It was a tough decision by the city,” Crane said Tuesday evening. “Unfortunately, it’s the outcome that occurred.”

Crane said Enchant has other projects in the works but was not at liberty to discuss them due to non-disclosure agreements.

Arbitration panel set to review city's claims on San Juan Generating Station acquisition

Duckett said work will continue on the local front to strengthen the local economy.

“I deeply regret that the arbitrators’ decision means we are not able to help our dislocated workers support their families and can only offer as consolation that we will continue our efforts to help mitigate these devastating impacts,” Duckett said in the release. “We will continue to support efforts to diversify our economy through various regional efforts. We hope to see successful deployment of carbon capture by Enchant in the future.” 

PNM says sold parts were replaceable

The company Farmington blames for the deal’s end had no comment Tuesday on Farmington’s news release. But PNM, the firm that managed the generating station and is overseeing decommissioning, had argued in a filing made as part of the arbitration process that everything that was to be sold was replaceable.

The arbitrators ultimately agreed.

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PNM stated that “even in the unlikely event that Farmington could prevail on the merits of its dubious contract claim, the loss of any equipment sold in the December SJGS auctions would be compensable with money damages. Farmington and Enchant Energy LLC’s (“Enchant”) recently-released Front-End Engineering and Design (“FEED”) Study underscores this fact. … The FEED Study acknowledges that the SJGS, if transferred to Farmington and retrofitted with speculative carbon capture technology, would not even be operational until September of 2027. This would give Farmington more than enough time to replace any auctioned equipment.”

Also, they argued to the arbitrators, removal of the equipment to be sold would not cause destruction or demolition of assets and nothing would stop the reinstallation of the assets they removed when a new operator came in.

“The equipment to be auctioned is not only interchangeable and typically replaced over the life cycle of an operating power plant, much of the equipment is over thirty years old and would need to be replaced as part of any proposal to operate SJGS in the future,” PNM argued.

A transformer is pictured just outside the San Juan Generating Station in this 2020 file photo. Transformers increase the voltage prior to transporting electricity away from a power plant.

The three-member arbitration panel that decided the matter found that no irreparable harm could come to the Claimant, the City of Farmington, from the sale of plant components that could be replaced in the future.

Arbitrators also noted the potential for PNM and the other owners working to decommission the plant, known in the arbitration document as “Respondents,”  to face increased costs if the process was stopped.

“Respondents also contend that if an injunction is granted Respondents will suffer monetary harm in the millions of dollars due to increased decommissioning costs, site monitoring costs, increased surety bond costs and increased permitting costs,” the Dec. 14 decision stated.

The arbitrators also noted PNM’s assertion that auctions have been ongoing for other assets and the city has accepted its share of the proceeds.

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“Claimant claims the equipment made the subject of the present auctions is the “heart” of the merits and dispute, as it is this equipment which transports the power to allow for the SJGS to be usable and run,” the arbitrators stated.

“Therefore, Claimant seeks to enjoin these auctions in order to keep the status quo until a Final Arbitration Hearing on the merits. Claimant argued if the auction proceeds there will be nothing left for the Arbitrators to decide.”

The arbitrators declined to pause the auctions, and seemed to suggest Farmington had not proven its case.

“The more credible evidence supports the argument that the equipment to be auctioned is replaceable,” the arbitrators wrote. “As such, Claimant has an adequate remedy at law if it is ultimately successful on the merits. At this time, Claimant has failed to show a probability of success on the merits. The Panel finds that a Final Hearing on the merits shall proceed on August 28, 2023 through September 1, 2023.”

The arbitrators referred to the city’s first try at an emergency stay of the auctions in October when rejecting the second request, and said the issues in the second claim are the same as in the first.

 “The Emergency Arbitrator finds that Claimant has failed to show that immediate and irreparable loss or damage shall result in the absence of the emergency relief for which Claimant has applied under R-39, as set forth in Claimant's Demand for Arbitration and submissions filed in support thereof,” Emergency Arbitrator Judith B. Greene wrote on Oct. 26. “Accordingly, the Emergency Arbitrator hereby denies Claimant's R-39 application for emergency relief in its entirety, without prejudice to Claimant's right to assert any claim or claims for relief on a non-emergency basis in accordance with the governing AAA Rules.”