PNM asks lawmakers to pay for coal plant shutdown
Ratepayers could be on hook for $350 million cost to close San Juan Generating Station
How much would you be willing to pay for Public Service Company of New Mexico to shut down a coal-fired power plant?
The state’s biggest utility is poised to close the San Juan Generating Station in 2022 but does not want to lose too much money on its investment in the facility. Rather than take a big financial hit, the company wants customers to cover the costs of closing the plant and switching to cleaner sources of energy.
Critics, however, have called the facility a bad investment. And regulators have said PNM cannot ask customers to pay all of its costs at the facility. They may have to pay anyway. The company is working on legislation that could still get ratepayers to make up for what PNM stands to lose if it closes the plant. That could total about $350 million.
PNM said the plan would allow shareholders to minimize their losses from closing the San Juan Generating Station. And some conservation groups are cautiously supportive, arguing it could create an incentive for companies like PNM to transition from coal to cleaner power sources. But critics contend that the plan amounts to a bailout for a bad investment and an end run around regulators.
Under the proposed legislation, an
affiliate of the utility would issue bonds to recoup the costs of closing the plant and PNM would get that money upfront to create sources of energy to replace the coal-fired generating station. The money would be focused — though probably not exclusively — on San Juan County, where the plant employs more than 200 people and which is expected to take an economic hit from the shutdown.
“It’s a tool that will make the transition even more cost effective,” said Gerard Ortiz, PNM’s vice president for regulatory affairs. “It will facilitate the transition to a cleaner portfolio.”
Plans to close the plant are a sign of changing times for the energy market. After maintaining for years that the coal plant is a reliable and affordable source of power, PNM said earlier this year it would be more cost effective to close the facility near Farmington. The company has already shut down two of its four units. And PNM issued a plan earlier this year that called for ending the company’s reliance on coal power completely by 2031.
The plan comes as coal gets tough competition from cheap natural gas and increasingly affordable renewable technologies. Meanwhile, Americans are using less power, doing away with hot incandescent light bulbs and buying more energy efficient utilities for their homes.
On top of that, power plants — including the San Juan Generating Station — have had to spend tens of millions of dollars to install pollution mitigating equipment to comply with environmental regulations or legal settlements.
The process PNM proposes to follow has been used in more than a dozen other states to recover what utility companies refer to as “stranded costs” when a power plant or other piece of infrastructure is shut down. But the process would be new for this state, requiring legislation. A proposed bill will likely be filed next week. The Legislature is scheduled to convene in midJanuary.
The Public Regulation Commission, which oversees the utility’s rates, would still have to approve the issuance of any bonds through the process. The commission would have to approve of closing the San Juan Generating Station, too. The company has not yet asked for that, and that is why Ortiz called this a tool — an option for the future.
The commission would also decide how much of its investment the company could seek to recoup from ratepayers through their monthly bills.
Last year, the commission rejected PNM’s proposals to pass the entirety of certain investments on to ratepayers.
PNM is disputing that decision in the state Supreme Court.
But critics contend it is a sign that the commission would not allow the company to charge customers 100 percent of the cost of closing the plant.
Mariel Nanasi, executive director of the advocacy group New Energy Economy, said if that is the case, customers would have to pay less than if the company is allowed to issue bonds for the total cost of the plant through the process PNM proposes.
Nanasi said PNM is effectively pulling an end run around the commission and asking customers to pay for what she said is the company’s bad investment, arguing the facility is not economically viable and should have been closed long ago.
“PNM is seeking a bail out from ratepayers of $353 million for closing San Juan ‘early,’ ” said Nanasi. “Actually it is late.”
But the company has suggested that if it cannot recover enough of the costs of closing the plant, it may hang on longer and keep it running.
And Ortiz maintains that securitization would allow the company to lock in a relatively low interest rate on the bonds, saving ratepayers more than $100 million in comparison to other financing mechanisms for recouping its costs.
Other conservation groups say the plan could provide a reasonable business incentive for companies like PNM to ditch coal for renewable sources of energy.
Perhaps just as important, however, are the sources of power that replace the coal plant.
Environmental advocates want to see coal power replaced with clean sources, not necessarily fossil fuels.
The Four Corners has plenty of natural gas, and local legislators likely would prefer to see the funds go toward developing a gas-fueled plant.
But to win support from environmentalists, securitization “can’t require the replacement come from a gas-fired power plant,” Camilla Feibelman, director of the Sierra Club Río Grande Chapter, said during the Neighborhood Law Conference in Santa Fe earlier this month.
Feibelman urged the company to think ahead and invest in renewable sources of energy to avoid ending up with the same predicament in the future.
“What’s going to work today may not work in 2022,” she said.