New Mexico delays action on San Juan coal plant

OREANDA-NEWS. May 28, 2015. New Mexico state regulators deferred a decision on allowing the state's largest utility to cut its stake in the 1,684MW San Juan generating station over concerns about the cost of replacement capacity and fuel supply arrangements for the coal-fired plant.

Units 2 and 3 of the San Juan plant must close by the end of 2017 to comply with New Mexico's plan for regional haze abatement. Public Service of New Mexico (PNM) will have to give up the 418MW it owns at those units.

PNM wants to buy another 132MW in unit 4. The utility following that acquisition will own 517MW at San Juan once units 2 and 3 shut. PNM also is investing in natural gas and solar generation and plans to make greater use of the 134MW of capacity it owns at the Palo Verde nuclear plant in Arizona.

The proposal is facing protests from environmental groups opposed to coal and from consumer advocates concerned about retail electricity costs. But the state Public Regulation Commission's primary concern is whether PNM can make timely arrangements to restructure the ownership in San Juan and complete a fuel supply arrangement with the nearby San Juan coal mine.

The commission at an open meeting today decided to review the ownership and fuel supply arrangements, delaying the vote on whether to approve PNM's proposal for the San Juan plant. Remarks by commissioners indicate their preference that capacity and fuel contracts will have to be binding before they vote.

PNM following the vote defended the proposal, saying, "the ownership restructuring and coal supply agreements would further increase the cost benefit to customers."

The New Mexico utility is hoping to buy out the stakes owned by California public utilities M-S-R Public Power Agency, Southern California Public Power Authority and the city of Anaheim and by the southwest cooperative group Tri-State Generation and Transmission Association. California renewable mandates are driving the state public power agencies' exit from San Juan. Tri-State is leaving to avoid costly environmental upgrades.

New Mexico utilities regulators had given PNM until 1 May to finalize the restructuring deal, a deadline the utility missed. PNM said it will take until 31 August to complete negotiations with all eight owners of San Juan, which include the city of Farmington and the Los Alamos County in New Mexico, Arizona utility Tucson Electric Power and the Utah Associated Municipal Power Systems cooperative. Tucson and Farmington have ruled out taking added stakes in San Juan.

The state commission wants the arrangements finalized by August.

The merchant generation arm of PNM's parent company PNM Resources likely will acquire another 65MW of capacity at San Juan unit 4, which will not require approval by state regulators.

PNM on 14 May announced a fuel supply agreement with Westmoreland Coal, which is taking over the San Juan mine in Farmington from BHP Billiton. PNM says the new agreement, valid from 1 January 2016 to 30 June 2022, yields \\$300mn in total savings compared with present supply arrangements.

PNM said coal deliveries in 2016-17 will cost 15-20pc less under the new agreement, and that prices after 2017 still will be lower than they would have been under the current contracts. The agreements filed with the state commission do not disclose the pricing arrangements.