Coal’s turbulent decline unfolds in N.M.

Source: By Edward Klump, E&E News reporter • Posted: Friday, February 1, 2019

The biggest electricity provider in New Mexico often goes by just three letters — PNM.

Now it’s knee-deep in efforts to shed its association with a four-letter fuel — coal.

The portion of coal in PNM’s generation mix dropped from 68 percent in 2005 to 56 percent in 2012 to an estimated 38 percent last year. Before 2031 is over, the utility expects to be coal-free.

But the Public Service Company of New Mexico — PNM’s formal name — can only leave coal behind if it curbs its reliance on the San Juan Generating Station and Four Corners power plant. And while there’s a push from environmental interests, stoked by the state’s new Democratic governor, to ditch the black rock, there are also widespread concerns about the economic fallout for northwestern New Mexico and tribal populations.

Tension was evident yesterday as the New Mexico Public Regulation Commission (PRC) voted to direct PNM to file an application by March 1 on the possible abandonment of San Juan. The company had been seeking to do that later this year, but the PRC decided to move ahead, even as critics suggested that could affect potential legislation.

Commissioner Stephen Fischmann, a Democrat, called the San Juan situation a big deal for customers and said lining up replacement resources would take time.

“It seems to me there’s going to be a process where we probably need to phase some out and phase some in,” Fischmann said at yesterday’s meeting. “And that’s going to have to start happening pretty fast.”

The shift in New Mexico is emblematic of coal’s decline in the U.S. power sector, which continued at a steady clip last year (Climatewire, Jan. 2). It also provides a glimpse of how a state and a company are approaching change that can be both incremental and politically messy.

PNM is pushing forward on a plan described in a 2017 corporate release as the most economical path to a strong energy future for New Mexico. Industry and environmental advocates are preparing to debate the role of natural gas and renewables in replacing departing coal-fueled generation.

“In the past, whenever we looked at something like retiring a baseload plant, we found that replacement options were more expensive,” Pat O’Connell, director of planning and resources at PNM, said in a recent interview. “That’s just not the case anymore.”

Two coal-fueled San Juan units went offline before last year, and two other units have a combined capacity of 847 megawatts. Of that remaining total, PNM owns 497 MW. The company has said those two units could retire before the end of 2022.

At Four Corners, PNM has said it plans to end its participation when a coal supply agreement ends in 2031. PNM controls 200 MW combined at two units there. Arizona Public Service Co., the biggest owner of capacity at the two Four Corners units, has said the plant remains in its resource mix for a planning horizon through 2032.

As coal discussions move ahead in New Mexico and beyond, one point of debate will be the hundreds of millions of dollars utilities spent on emissions control equipment and other work at aging plants. The potential for mine reclamation and plant decommissioning also looms on the horizon, as do the effects on perhaps hundreds of workers in New Mexico and the region.

Renewable, climate shift

PNM has plotted a pivot to cleaner energy in its integrated resource plan, which was accepted by New Mexico regulators in December. The company has looked at potential additions of solar, wind, energy storage and natural gas resources.

PNM is part of Albuquerque, N.M.-based PNM Resources Inc.

“Through the implementation of this plan, more than half of PNM energy would be emission-free by 2023, increasing to nearly 70 percent emission-free by 2032,” Pat Vincent-Collawn, CEO of PNM Resources, said in a statement last month. “The plan lays the groundwork for New Mexico to become a leader in sustainable energy.”

PNM’s transformation is unfolding as a new voice arrives on the scene: New Mexico Gov. Michelle Lujan Grisham (D).

Grisham, elected last year, supports a push for more renewable energy (Energywire, Jan. 17). This week, she signed a climate-themed executive order to formalize some of her goals.

“We know all too well states cannot rely on the federal government right now to act responsibly and take the bold action scientists have made clear is needed to prevent calamitous climate change fallout in our lifetimes,” she said in a statement.

Proposed legislation this year would boost minimum renewables requirements for retail sales to New Mexico customers. S.B. 275 would raise the current 20 percent by 2020 for certain utilities to 50 percent by 2030 and 80 percent by 2040.

“It’s worth watching New Mexico now,” said Tom Ribe, executive director of Caldera Action, a conservation group based in Santa Fe, N.M.

Ribe has been critical of Arizona and New Mexico regulators for allowing companies to pass along costs from coal-fueled generation to customers. He called for New Mexico’s renewable standards to rise as fast and aggressively as possible, and he’d like to see renewables and storage replace coal.

But utility companies such as PNM question the feasibility of such goals.

“We are working with our coalition partners to fine tune the actual piece of legislation, obviously it’s in everyone’s best interest to transition NM into sustainable energy as quickly as possible,” the company said in a statement. “Candidly, we don’t know if that [80 percent] target is possible and we are doing our best to see if it’s possible — certainly it’s a stretch.”

Analysts have also questioned the reliability implications of high penetrations of renewables (Greenwire, Dec. 10, 2018).

In emailed comments, Lasan Johong, a senior research analyst with Auvila Research Consulting, said PNM’s planned coal exit is the right move even if it means higher power prices for customers. He cited environmental benefits, the potential for tighter regulations in the future and the chance for PNM to invest more money.

But a possible 50 percent renewable standard in the state “is playing with fire,” Johong said, and 80 percent “is asking for trouble.” He said there could be a reliability problem at 80 percent renewables without significant backup or storage power, while the cost also could be high.

New Mexico lawmakers are facing likely debate on renewables and other energy matters. And talk of electric competition in the state also has emerged, according to the Santa Fe New Mexican.

Focus on San Juan

For now, the future of the San Juan coal plant remains uncertain.

While many expect the facility to close in a few years, the Albuquerque Journal noted some local officials want to explore a possible transfer of the plant to new operators after 2022.

Noah Long, a senior attorney with the Natural Resources Defense Council, said legislation could help resolve how a possible retirement of the plant would affect customers and the environment, as well as the community and workers.

One element might involve customer-backed bonds to help with money approved by regulators that hasn’t been paid back — a balance that Long said is in the hundreds of millions of dollars. Such bonds also could help the area transition economically, he said.

The San Juan plant is located near Farmington, N.M. Unit 1 dates to 1976, while Unit 4 dates to 1982, according to PNM’s integrated resource plan. Coal for the plant is purchased from a nearby coal mine owned by another company. PNM said it has overseen administration of a coal contract, which runs through June 30, 2022.

Commissioner Cynthia Hall (D) of the PRC said an abandonment proceeding in New Mexico will allow the commission to hear all voices. “We could conclude through an abandonment proceeding that the plant should not close,” Hall said. “We have an obligation to look at both sides of that issue.”

New Energy Economy, a nonprofit that advocates renewables, had urged the PRC to move ahead with a procedural schedule in a filing this month, calling it “a massive moment” in the state’s history that could benefit the state’s health and economy.

The conservation group Western Resource Advocates in its own January filing expressed concern that docketing and expediting the case was partly “to preclude legislative action to develop policies” addressing the effects of coal plant closures.

PNM, for its part, is waiting to see whether state legislation emerges that would affect its planned transition away from coal. The utility called yesterday’s PRC action premature and said the discussion around renewables and cleaner energy must occur thoughtfully.

“During the session, lawmakers and our new Governor are expected to enact legislation that will affect all aspects of our state’s energy policy,” PNM said. “It would be prudent to let the Governor and lawmakers do their jobs.”

Still on the table are questions about how to replace coal-fueled power from San Juan. Mona Blaber, communications director for the Rio Grande Chapter of the Sierra Club, said it can be cost-effectively replaced with renewables and storage.

For 2018, PNM had a generation mix of 38 percent coal, 33 percent nuclear, 18 percent gas, 8 percent wind and 3 percent solar. Those numbers are preliminary and include power from the Palo Verde nuclear power station in Arizona.

A PNM projection for 2035 shows a possible generation mix of 31 percent gas, 31 percent nuclear, 22 percent wind, 15 percent solar and 1 percent geothermal.

But O’Connell said renewables may take a bigger share by 2035 than the latest integrated resource plan estimates. The company, he added, is looking at how best to deliver energy that customers want.

“And best is defined by reliable, cheap and with less impact on the environment than has occurred in the past,” O’Connell said.