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The Daily Times toured the San Juan Generating Station. Here's a look inside the coal-fired power plant at the center of the state's energy debate. Farmington Daily Times

Final decision in San Juan Generating Station case expected by the end of March

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FARMINGTON — The New Mexico Public Regulation Commission hearing examiners have recommended that the commission approve Public Service Company of New Mexico's application to abandon the San Juan Generating Station and refinance past investments using low-interest bonds. However, that does not necessarily mean the San Juan Generating Station will close in 2022.

In fact, Farmington Mayor Nate Duckett described the recommended decision as a positive step forward in the effort to keep the plant open.

"Now PNM is able to close a chapter on what they've been trying to do for years," Duckett said.

He said that will allow Enchant Energy to ultimately take ownership of the plant, retrofit it with carbon capture technology and keep it open.

More: Agreement between Enchant Energy, Westmoreland another step in keeping power plant open

The recommended decision is not the final decision. The various parties involved in the case now have the opportunity to weigh in on the recommendation before the PRC ultimately decides whether to accept it, amend it or reject it.

The final decision will likely come by the end of March.

Recommended decisions generate mainly positive reactions

The hearing examiners issued two recommended decision documents on Feb. 21. One document focused on the abandonment — or PNM ending its operations — of the San Juan Generating Station. The second document focused on financing.

The Energy Transition Act, which became law in 2019, allows investor-owned utilities like PNM that are regulated by the PRC to apply for a financing mechanism known as securitization. This involves using low-interest bonds to refinance the past investments into the power plant.

More: The Energy Transition Act outlined a path away from coal. The first steps are underway

"Regulatory abandonment does not mean closure," said Enchant Energy Chief Operating Officer Peter Mandelstam.

He said the recommended decision is an important step forward for the success of the carbon capture project.

"I see this as a win for the City of Farmington and Enchant," Mandelstam said, adding that, most importantly, he sees it as a win for PNM's ratepayers.

Enchant Energy is not directly involved as an intervenor in the case, but its partner, the City of Farmington, did intervene. Intervenors are allowed to file testimony and cross-examine witnesses.

The majority of intervenors involved in the case have had a positive reaction to the recommended decision.

"This recommendation supports an end to the coal pollution that has been harming our people and lands for decades," said Wendy Atcitty, an energy organizer for Diné Citizens Against Ruining our Environment, in a press release. "Additionally, the hearing examiners supported advance distribution of a portion of recovery funds, which will help provide real economic relief, support, and opportunity to the impacted communities and workers of SJGS. It is encouraging that 100% of the pre-funding requested for Indian Affairs and Economic Development were affirmed." 

PNM spokesman Raymond Sandoval said he believes the utility's transparency throughout the process led to that wide-spread support for the recommended decision.

"We wanted to responsibly exit coal and do it the right way," he said.

One notable exception is New Energy Economy, a non-profit advocacy group that is concerned with the impacts to ratepayers.

More: 'Future residents will likely be unaware:' Hydrogeologist warns mine could pollute water

"The (governor, Legislature and New Mexico Supreme Court) forced the Energy Transition Act...down the throats of the PRC leaving the regulators with no ability to regulate," Executive Director Mariel Nanasi said in a press release. "So it's no surprise that the Hearing Examiners recommended that PNM get 100% of the money they asked for — that's the bailout that the ETA gave PNM, at the expense of the poor."

New Energy Economy supported PNM's decision to close the power plant, but believes the shareholders should bear the cost rather than ratepayers.

Hearing examiners: Carbon capture is not in best interest of PNM ratepayers

During testimony, a member of the PRC staff said PNM should have further explored the possibility of keeping the plant open with carbon capture.

The hearing examiners found it would not be in the best interest of PNM ratepayers for the PRC to require the utility to keep the San Juan Generating Station open and retrofit it with carbon capture technology.

More: PNM: Carbon capture at San Juan Generating Station won't provide reliable, affordable electricity

"The commission, as is its mandate, was looking out for the ratepayers," Mandelstam said.

He said utilities like PNM are not the type of organization that generally spends $1.3 billion on cutting-edge technology like carbon capture. Instead, utilities prefer well-understood and low-risk assets.

More: IEEFA analyst says San Juan Generating Station proposal based on faulty assumptions

The hearing examiners stated PNM would be required to acquire the interests of other San Juan Generating Station owners, which would likely include additional liabilities for decommissioning and reclamation. In addition, PNM would have to spend $1.3 billion to install the technology, and there is no guarantee that the project would be successful. 

More: After years of waiting, IRS and Treasury release guidance for carbon capture tax credit

However, the hearing examiners stated that Farmington and Enchant may still be able to retrofit the power plant, keep it open and even prepare a power purchase agreement proposal for PNM if it is successful.

"The risk of proceeding on this latter path, however, will be on Enchant and its investors and not on PNM's ratepayers," the recommended decision states.

Mandelstam echoed that sentiment.

"When Enchant goes forward, there is zero risk to the ratepayers," he said.

He said the recommended decision is consistent with Enchant Energy's position that a utility like PNM is not the right type of organization to go forward with the carbon capture project. However, Mandelstam said Enchant believes it is the right party to successfully retrofit the San Juan Generating Station and keep it functioning through at least 2035.

Enchant Energy will operate as a merchant utility, which means it will not be overseen by the PRC and won't be subject to the renewable portfolio standards implemented by the Energy Transition Act.

Ratepayers may see decreased bills 

Although PNM ratepayers will see a non-bypassable charge on their bills, the recommended decision states that the savings from no longer using the power plant will likely offset the non-bypassable charge.

More: Looking forward: PNM official talks next steps as utility looks to end SJGS operations

"The cost savings from abandoning San Juan Units 1 and 4 are large enough to offset the added costs of the (Energy Transition Charges) and PNM’s proposed portfolio of replacement resources," the recommended decision states. "Thus, the immediate impact of the securitization and abandonment should be a net savings in customers’ monthly bills. PNM estimates the savings for an average residential customer using 600 kWh per month and paying the $1.90 per month ETC should approximate $6.87 per month on their current monthly bill of $73.25.  Even the residential customer using 1,000 kWh per month and paying the higher $4.97 per month ETC should see a savings of $9.65 per month on their current monthly bill of $129.03 per month." 

Economic assistance for San Juan County included in recommendation

The Energy Transition Act required a portion of the low-interest bond proceeds be put aside for economic assistance to workers and the impacted community, including Navajo Nation.

The power plant was initially scheduled to close in 2023, but after PNM upgraded the power plant with new pollution controls it applied to extend the operational life until 2053. The PRC approved that request.

That led to Central Consolidated School District issuing bonds backed by property taxes under the assumption that the power plant would be open through 2053. The San Juan Generating Station and its associated mine are the largest sources of property tax revenue for the district.

More: 'Decision by the utility has been made.' New Mexico unions prepare to transition from coal

If the power plant closes, workers will lose their jobs and the school district may struggle to make its bond payments.

If the PRC approves securitization, approximately $40 million will be available through three state departments to assist the community.

"There's a very real human element," Mandelstam said.

The hearing examiners said it is unclear how much of the assistance will be needed if Enchant Energy successfully retrofits the power plant and keeps it open.

Sandoval said PNM plans to fully fund the $40 million of economic assistance to the community.

"We care about these workers," he said.

Sandoval said PNM will leave the plant in the summer of 2022 and Enchant Energy plans to have the carbon capture retrofit completed in 2023. That may mean a year-long gap in operation. Sandoval said during that year the employees will still have bills to pay, including mortgages and car loans.

The hearing examiners pointed out that legislators did not take into account the possibility that the plant could stay open when the Energy Transition Act passed in 2019. They stated that legislative guidance is likely needed.

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at hgrover@daily-times.com.

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