Two bills would provide financing mechanism for closure of San Juan Generating Station
FARMINGTON — Two senate bills introduced this legislative session would allow Public Service Company of New Mexico to use low-interest bonds while closing the San Juan Generating Station and moving to other sources of power.
This process is known as securitization and has been used by utilities nationwide since the late 1990s and would require ratepayers to pay the cost of closing the power plant.
The Energy Transition Act was co-sponsored by Sen. Jacob Candelaria, D-Albuquerque, and Sen. Nathan Small, D-Las Cruces, while the Ratepayer Relief Act was sponsored by Sen. William Soules, D-Las Cruces. Both bills have been referred to the Senate Conservation Committee for review.
While securitization is not new, these bills both address uncharted territory.
“No coal plants, to my knowledge, have been closed using securitization,” said Joseph Fichera, the CEO of the public advisory firm Saber Partners.
Saber Partners has served in an advisory capacity in other securitization cases and was contacted by the New Mexico Public Regulation Commission last year when a similar bill was going through the legislature.
Fichera spoke to the PRC during its Jan. 13 meeting in Santa Fe, which can be viewed at nmprc.state.nm.us.
He said he does not know of incidents where securitization has been used to finance closure of a utility asset like the San Juan Generating Station that is not at the end of its useful life. It has been used to install pollution controls on a coal plant in West Virginia and to decommission a broken nuclear power plant in Florida.
Securitization could pay for decommissioning, job training
Closing the generating station will cost money, including decommissioning costs. The utility recently invested in pollution control technology at the power plant and has not recovered the cost of various investments into the plant. Securitization will allow it to pay off those recent investments.
The PRC would be tasked with reviewing an application for securitization. The five-member commission would then decide whether to grant or deny the application.
If the Energy Transition Act is approved, PNM could also use securitization to assist San Juan County with economic diversification and to provide $20 million in severance and job training to employees at the generating station and associated coal mine.
The Energy Transition Act defines abandonment costs as $375 million or 150 percent of the undepreciated investment into the power plant. Meanwhile, the Ratepayer Relief Act gives the PRC authority to determine reasonable and prudent costs of closing the generating station, including how much of the undepreciated investments the utility’s ratepayers are obligated to pay.
While the San Juan Generating Station is located in San Juan County, local residents are not PNM customers. The majority of San Juan County receives its power from Farmington Electric Utility System, which is a partial owner of the generating station.
Farmington is the sole owner that wants to keep the power plant open, and is currently seeking a new operator for the generating station. If it finds a company willing to operate the power plant, Farmington could take over ownership of the facility.
These low-interest bonds would be paid for using a non-bypassable charge on every ratepayer’s account. Those charges would be adjusted to ensure the bonds are paid, however the PRC would not have authority to regulate those charges.
“Ratepayers are responsible for all costs,” Fichera said “Every dollar is a ratepayer dollar.”
Some differences between the Energy Transition Act and the Ratepayer Relief Act include:
- The Energy Transition Act requires replacement resources to be built in the Central Consolidated School District to help offset economic impacts to the district.
- The Energy Transition Act creates an energy transition economic development assistance fund and an energy transition displaced worker assistance fund to help mitigate the impacts of closing the coal-fired power plant.
- The Energy Transition Act requires the PRC to give preference to renewable energy sources when determining what resources PNM can use to replace the power from the San Juan Generating Station.
- The Ratepayer Relief Act requires utilities seeking securitization to provide at least one other alternative financing scenario.
- The Ratepayer Relief Act would require the utility to file information with the PRC about up-front and ongoing financing costs within 120 days of issuing the securitization bonds.
- The Energy Transition Act includes renewable portfolio standards that all PRC-regulated electric utilities would be required to meet.
Lawyer: Ratepayer Relief Act gives PRC more authority
Dean Criddle-Orrick, a lawyer who has worked on securitization bills, and Fichera said the Ratepayer Relief Act provides the commission with more authority to protect the ratepayers.
Criddle-Orrick gave various examples of how the Ratepayer Relief Act provides more protection to the ratepayers, but he said the most important difference is that the Ratepayer Relief Act gives the PRC the authority to impose additional terms and conditions in the financing agreement.
“In my judgement, that’s vitally important to protect ratepayers,” he said.
Criddle-Orrick said the Energy Transition Act could potentially prohibit the PRC from including additional terms and conditions that are not outlined in the legislation itself.
Fichera said there could be amendments to the Energy Transition Act to include provisions in the Ratepayer Relief Act.
“I really am happy that we are pursuing legislation and really support the goals of the legislation,” said Commissioner Steve Fischmann.
However, Fischmann expressed concerns that the ratepayers will be hurt by the legislation and the PRC’s authority could be limited. He said he is optimistic that the legislation could be amended.
“I want to see good legislation,” Fischmann said. “I want to see good environmental legislation.”
Energy Transition Act sets requirements for renewable energy
The Energy Transition Act also includes renewable portfolio standards for all investor-owned or cooperative utilities. This means electric utilities that fall under PRC oversight will be required to increase the amount of energy generated by renewable sources. If passed, it would require PNM and other investor-owned utilities to receive 100 percent of their electricity from renewable sources by 2045.
PNM spokesperson Raymond Sandoval described the Energy Transition Act as a ground-breaking sustainable energy policy in an email to The Daily Times.
“PNM supports the efforts of a new sustainable energy economy and is working to help meet the goals of our state and our new governor,” Sandoval said.
Sandoval said PNM will use the renewable portfolio standards while drafting the 2020 integrated resource plan. The utility will begin the process of drafting that plan this summer.
“The energy industry is at a historic tipping point as it relates to traditional versus more sustainable energy resources and it is clear our state and our customers want to transition to a cleaner energy future,” Sandoval said. “PNM is responsible for reliability and it is our duty to correctly develop and maximize implementation of cleaner energy generation.”
Sandoval said technology advancements and cohesive planning as well as support of decision makers including the administration, state legislature and PRC will be necessary if PNM is to eliminate all carbon emissions by 2045.
Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at firstname.lastname@example.org.