Power struggle: Farmington vows to get ownership of San Juan Generating Station

PNM says Farmington, Enchant Energy to blame for no agreement after years of negotiations

John R. Moses
Farmington Daily Times

FARMINGTON — The CEO of the company that hopes to take over the San Juan Generating Station and save local jobs said negotiations with the plant’s operator and owners have not been productive.

So, the City of Farmington will take the lead and assert its rights to the facility under the terms of an exit agreement reached in 2017 among the plant’s ownership group.

According to the Public Service Company of New Mexico (PNM), which is in the process of shuttering the facility, those "rights" Farmington refers to don’t exist within an exit agreement that terminates at the end of September when the plant closes. PNM said both the city and its partner, Enchant Energy, failed for years to settle the basic issues raised by the plant’s current owners.

“PNM continues to work closely with the other owners to ensure there is no additional liability taken on for customers, nor authorize a transfer with no financial assurances by the other party,” a PNM spokesman said in a statement Friday morning. “We cannot put our customers in a position of liability without doing our due-diligence.”

In response to questions from The Daily Times, the city on Sept. 16 issued several statements indicating a sharp disagreement with PNM’s take on things, particularly whether an exit agreement inked in 2017 guarantees Farmington the right to take over the power station if the other owners walk away.

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“The City of Farmington has the right under the SJGS New Exit Date Agreement for ownership rights and assets of SJGS to be transferred to the City in such condition that the City can continue the successful operation of SJGS,” the city said via an email from Public Affairs Administrator Georgette Allen on Sept. 16.

When asked whether Farmington was willing to accept financial responsibility for and release PNM and other SJGS owners from liability for the power station, any remediation projects and the trust funds set aside connected with the site, the city responded, “City of Farmington expects all owners of SJGS to fully comply with the contractual obligations regarding these issues included in the SJGS New Exit Date Agreement."

"Farmington is committed to keeping SJGS open with carbon capture technology, which will save and expand jobs, increase tax revenue for schools and create future career paths," the city said at the beginning of its email.

Farmington Mayor Nate Duckett said preserving a reliable power source, keeping plant workers employed and avoiding a spike in utility rates are vital duties, and he said Farmington will not back down on its responsibilities to its residents.

“If we have to fight for them, we have to fight for them,” he said on Sept. 17.

Transmission lines take power away from the San Juan Generating Station.

Enchant says talks were not productive

“The city is taking actions it needs to take in order to protect their rights,” Enchant Energy CEO Cindy Crane said on Sept. 15.

Negotiations have been stalled between plant owners and those who want to save the aging coal-fired plant, and the jobs it provides in the facility and a neighboring coal mine. Crane said all but one major sticking point was addressed but did not say what that issue was.

“The owners refused to budge,” Crane said.

Crane said things are in place to get the facility running should a transfer occur, including a study on the feasibility of installing carbon capture at the plant. A new plant operator is on standby and waiting to go.

As far as reaching a deal with the plant’s ownership group, Crane said Enchant found “an absolute lack of cooperation from PNM.”

PNM responds

Citing years of what is says was good-faith bargaining, a PNM spokesman said the utility isn’t at fault.

“It's disappointing that Farmington at the 11th hour is now trying to shift blame for their own inability to satisfy the requirements of a transfer proposal.” PMN Director of Corporate Communications Raymond Sandoval said via email Sept. 16.

PNM, which has usually spoken in opaque terms about the negotiation process since the idea of negotiations was brought up years ago, said Friday that Enchant and the city didn’t bring enough to the table.

"The current and former owners have worked for more than four years to cooperate fully with the city of Farmington and Enchant,” Sandoval said in the statement. “This has included numerous data requests, hosting tours for multiple potential developers, plant testing as requested, access and input for engineering studies, and countless times set aside for discussions, as well as reviewing site repurposing potentials. Despite these extensive efforts by the current and former owners, Farmington and Enchant have failed to address the fundamental threshold issues requested by the full ownership group that have existed over the more than four years through these discussions.”

That transfer agreement is a 2017 document with the header “New exit date amendment amending and restating the amended and restated San Juan Project participation agreement among Public Service Company of New Mexico, Tucson Electric Power Company, the City of Farmington, New Mexico, the incorporated county of Los Alamos, New Mexico. Utah Associated Municipal Power Systems.”

In paragraph 40.B.3, the agreement states that the “non extenders” — PNM, Tucson Electric, UAMPS, Las Alamos — “shall negotiate in good faith with the Extenders" (the City of Farmington) "to convey the Non-Extenders’ rights, titles and interest in the San Juan Project to the Extenders …”

PNM officials contend that the agreement only covers Farmington, as an owner, and not a third party like Enchant Energy, and gives Farmington the ability to negotiate for a transfer. PNM also contends that nothing in the document guarantees a transfer.

Another section of the document also addresses the transfer process.

Paragraph 10.3 states “… no Participant shall transfer or assign its respective rights, titles and interests in the San Juan Project, in, to and under this Agreement and/or in the water rights, land, land rights and the improvements thereon, without the prior written consent of the other Participants, which consent shall not be unreasonably withheld.”

Air quality issues unresolved

Even if the station were transferred immediately, there’s the issue of whether it can legally continue to operate without carbon capture technology after Jan. 1, 2023.

The Energy Transition Act "requires the Environmental Improvement Board (EIB) to promulgate a rule that limits carbon dioxide emissions from certain electric generating facilities under their jurisdiction to 1,100 pounds per megawatt-hour on or after January 1, 2023," the New Mexico Environment Department (NMED) stated on its website.

The plant would need a waiver to operate once new air quality rules go into effect next year.

Enchant plans to eventually install carbon capture technology to bring the facility into compliance with air quality rules but seeks to run the station for as long as necessary without the extra pollution controls until the technology can be installed.

Cindy Crane

“We have been in discussion with NMED,” Crane told The Daily Times on Sept. 15.

NMED Communications Director Matthew Maez said the agency has spoken with Enchant and has given the company information on the kinds of review an ownership transfer goes through, versus a more intense review if new equipment is installed. He said NMED staffers also reviewed the specific kind of applications Enchant would need to file.

On Sept. 16, the city issued the following statement to The Daily Times: “The City of Farmington is currently working with NMED to ensure that an air permit is in place for SJGS to continue the successful operation of SJGS.”

A further complication is how to move power from the station, as PNM owns the transmission lines installed there and has flatly rejected the idea of doing business with Enchant as it shifts its energy portfolio away from fossil fuels.

Money left on the table topic of “Mayor’s Table” session

The station’s future was on the mind of Farmington officials as the Sept. 30 closure deadline loomed well before the city's public statements Friday.

Farmington Mayor Duckett and Electric Utility Director Hank Adair of the Farmington Electric Utility System (FEUS) discussed the city’s practical and financial interest in keeping the station online during a recent “The Mayor's Table: Special Edition w/FEUS” program.

“Enchant Energy continues to work tirelessly on that plan,” Duckett said.

“Obviously at this point we’d like for them to have been further along,” Duckett added during his broadcast, noting that’s not how things turned out.

At stake for Farmington, Adair said, is $26 million in undepreciated assets at the plant that will just go away.

Said Duckett, nowhere in the ETA’s wording is a passage saying, “Farmington, we’re going to make sure you get a check for your physical assets that you paid for.”