Environmental, financial concerns brew over PNM’s Four Corners exit plan
Anew battle is brewing over Public Service Co. of New Mexico’s plan to exit the coal-fired Four Corners Generating Station nearly seven years ahead of schedule.
The utility formally filed its plan with the state Public Regulation Commission on Jan. 8, potentially opening a six-month window for approval or rejection by commissioners, who have yet to act on the filing. But environmental groups likely to intervene in the case are already lining up in opposition to key parts of PNM’s request, which includes permission to transfer its stake in the coal plant to a Navajo Nation entity and recover $300 million it has invested in Four Corners using low-cost bonds that would be paid off by utility customers.
PNM says the plan will allow it to entirely exit coal generation by 2024, significantly advancing its compliance with the state’s Energy Transition Act. That law requires New Mexico’s public utilities to replace fossil fuels with 50% renewables by 2030, 80% by 2040, and 100% carbon-free generation by 2045. The company already received PRC approval last year to abandon the San Juan Generating Station near Farmington — PNM’s only other coal facility — by June 2022.
The utility says early departure from Four Corners in December 2024 — six and a half years in advance of the July 2031 expiration date for the plant’s current coal supply agreement with the nearby Navajo Mine — would provide significant cost savings for consumers.
“Following on the approval to shut down the San Juan Generating Station, the exit from Four Corners is PNM’s next and final step in transitioning away from coal-fired generation to more sustainable energy resources,” said PNM Vice President of Generation Tom Fallgren in written testimony included in the PRC filing. “If PNM’s application is approved, PNM will no longer have any coal resources in its generation portfolio after 2024.”
Benefits disputed
PNM says use of the low-cost bonds to recover its investments — which is authorized under the energy law — plus replacing the coal with cheaper renewable generation, could save customers anywhere from $30 million to $300 million over time compared to remaining in Four Corners until 2031. The amount saved depends on the particular replacement resources the PRC approves for PNM.
The company asked that the PRC decide on appropriate replacements after it approves abandonment of Four Corners, giving the company time to circulate requests for proposals from energy developers and then develop formal proposals to commissioners based on the RFP responses.
But environmentalists say the early-exit plan has no real environmental benefits, since PNM is simply offloading its share in the coal plant to the Navajo Transitional Energy Co., which would continue operating Four Corners along with other plant co-owners through 2031.
“Under the filing, it’s very difficult to see any environmental benefit to what PNM is proposing,” said Noah Long, Natural Resources Defense Council western director for climate and clean energy. “... It’s set up to be an environmental catastrophe. It leaves the plant running and just pushes off PNM’s stake in the facility onto NTEC.”
Unlike the San Juan Coal plant, where PNM is the majority owner and facility operator, it’s only a minority shareholder in Four Corners, giving it no decision-making power to shut that facility down ahead of 2031. PNM owns 200 megawatts, or 13% of the 1,540-MW capacity contained in the two coal units currently operating at Four Corners.
Arizona Public Service is the majority owner and operator with a 63% stake, followed by the Salt River Project with 10%, a 7% stake by Tuscan Electric Power, and another 7% that NTEC already owns in the plant.
It would take a common agreement among all co-owners to shut down the plant before 2031, meaning PNM must sell off its stake as the only option for early abandonment, Fallgren said.
“The remaining owner-participants have not indicated an intent to accelerate the plant’s closure prior to 2031,” Fallgren said.
$75M, 700 jobs
PNM’s exit plan is based on a negotiated agreement to sell its Four Corners stake for $1 to NTEC. It’s also agreed to pay NTEC $75 million for the right to break its share of the coal agreement with the Navajo Mine, which NTEC owns, nearly seven years ahead of contract expiration.
PNM shareholders will pay the entire $75 million, relieving utility ratepayers from any responsibility for breaking the coal contract, according to PNM.
For its part, NTEC wants to acquire PNM’s share — which would increase NTEC ownership in Four Corners to 20% — to keep the coal mine and generating facility running through 2031. That reflects the financial benefits the Navajo Nation derives from those operations, and the hardships an early shutdown would cause.
Of the 700 direct employees currently working at the mine and plant, 600 are Navajo, Fallgren said. In addition, the Navajo Nation earns between $40 million and $45 million annually from royalties at the Navajo Mine, plus taxes on mine and plant operations, accounting for nearly 24% of the Navajo Nation’s fiscal year 2021 general fund.
Other concerns
Meanwhile, in addition to questionable environmental benefits, opponents say PNM’s plan, as proposed, would place an unfair financial burden on ratepayers even if the utility shareholders do pay the entire $75 million to break the coal contract. That reflects disagreement over whether PNM is actually entitled to the full $300 million in investments it wants to recover from Four Corners.
Under the recovery bonds authorized by the energy act, PNM is entitled to earn back all expenses that the PRC previously included in the utility’s base rates to cover its lost, or “stranded,” assets when shutting or abandoning a coal facility. But there are different interpretations about what that means in practice.
PNM believes it refers to any investments already approved by the PRC for recovery through rates prior to the energy law’s enactment.
But opponents say about half of the $300 million represents investments PNM made in Four Corners that were never actually vetted for “prudence” by the PRC, even though commissioners did include it for recovery in PNM’s last rate case in 2016. That’s because intervenors in that last case reached a settlement with PNM — which commissioners
approved — for the prudence of PNM’s investments to be reviewed in the utility’s next rate case. Then, after formal vetting in the next rate case, if commissioners find that some investments were unjustified, rates would be adjusted downward to pay customers back for what they were already charged, with PNM forced to write off the remainder.
PNM believes the energy law’s bond authorization, known as “securitization,” makes those arguments moot.
“The (energy act) is clear that what is applicable for securitization are those assets that were in rates already in effect up to the end of 2018,” PNM Sr. Vice President for Public Policy Ron Darnell told the Journal.
Intervenors who participated in that last rate case see it differently.
“I disagree with that,” said Steve Michel, an attorney with Western Resource Advocates. “Yes, those investments in Four Corners can be securitized, but the commission still has its authority to address the prudence of those costs that weren’t vetted in the last rate case.”
Anticipating a dispute on the issue, the Sierra Club filed a motion in December asking the commission to immediately open a prudence review of the investments to resolve the disagreements before it authorizes bond recovery for PNM.
Even if the bond recovery issues are resolved, PRC hearings may also get snagged over another $73 million PNM wants to recover for new investments it will have made in Four Corners from July 2020-December 2024 prior to exiting the plant. That could harden opposition to PNM’s Four Corners plan even more, said Noah Long of the Natural Resources Defense Council.
“That’s $73 million in new spending just as PNM is going out the door,” Long said. “To me, this filing needs to be pulled and PNM needs to go back to the drawing board.”
Given the lack of environmental benefits, the questions on cost could become pivotal at the PRC.
“There really aren’t any environmental benefits, so the PRC’s decision may boil down to the economics of PNM remaining in the plant or exiting it early,” Michel said.