NEW MEXICO (KRQE) – A debate is raging over the shutdown of a coal-fired power plant in northwest New Mexico — and it could affect whether or not you’ll see a decrease in your electric bill.
The San Juan Generating Station near Farmington is the focal point of the debate. It was built in the 1970s, burns coal from the nearby San Juan Mine, and produces a net total of about 847 megawatts of electricity, according to statistics presented to the state’s Legislative Finance Committee.
Now, there are plans to shut down the plant. In 2017, two of the four boilers were decommissioned. But stakeholders are currently arguing over how the shutdown of the remaining two will affect PNM customers across the state.
At stake is a reported $94 million in potential savings to customers, according to court filings. Western Resource Advocates, the Coalition for Clean Affordable Energy, and Prosperity Works — groups pushing PNM to decrease rates — is alleging that PNM is “unlawfully delaying the issuance of bonds to avoid reducing its rates.” PNM says waiting is best for customers.
Understanding shutdown costs
To understand how bonds affect how much you pay for electricity, you need to understand how energy providers, like PNM, are regulated. The prices they set for electricity are determined, in part, by the value of property the utility company owns. The state’s Public Regulation Commission decides how much PNM can charge customers for electricity based on the value of property they own. More valuable property generally means PNM can ask the state to consider letting PNM raise rates.
The operational boilers of the San Juan Generating Station, of course, are valuable property. So, the idea is that shutting them down should decrease the value of property PNM effectively holds, which in turn should mean lower rates for customers.
But shutting down the plant costs money. In 2019, PNM estimated that abandoning the plant and related energy transition costs around $360.1 million. Ultimately, electricity customers will have to pay for much of the transition to clean energy. But exactly when and how customers will have to pay for those costs is unclear.
“As we make this transition, you’re gonna see that costs are gonna go up so we can actually replace resources,” explains Raymond Sandoval, PNM’s director of corporate communications and brand management. Those costs increase as PNM adds new transmission lines, new smart meters, and new technology including cybersecurity technology, Sandoval says.
To help ease the cost of transition, state law allows PNM to issue bonds to make up for lost income that PNM would’ve generated had the plant stayed open, as well as the cost of shutting down the plant. The bonds could cover around $361 million in PNM’s costs, according to the company’s original application to close the plant. But exactly when those bonds will be issued has stirred controversy.
“The issue is: When do the bonds get sold?” explains Pat O’Connell, the deputy director of Western Resource Advocates’ Clean Energy Program. “That’s the thing that drives the customer savings.”
Accusations of delay
Western Resource Advocates, the Coalition for Clean Affordable Energy, and Prosperity Works claim, in a motion, that PNM is purposefully delaying issuing a bond to pay for shutdown of the San Juan Generating Station, thereby making PNM’s electricity customers continue to bear the cost of the plant. Advocates estimate that if PNM continues to charge customers for the plant after it stops operating, the utility will owe $94 million per year in credits to customers.
“During that delay, PNM will collect all of its San Juan costs in rates, even though the plant is no longer serving PNM customers and PNM is no longer incurring costs to operate the plant,” they argued in the motion. “Simply put, PNM’s delay strategy, aside from being illegal, shows a callous disregard by Company
management for the well-being of its customers, impacted communities and anyone that is not a PNM shareholder.”
In a response filed on April 1, PNM argues that it’s not doing anything illegal and there’s no set date they’re required to issue bonds. Additionally, they argue that customers are already saving a total of $23 million to $36 million in cost increases they’ve incurred over the last two years.
PNM points to expenses they’ve had in the form of investments that are not yet reflected in the price customers pay for electricity. If PNM’s rates were adjusted for those investments, customers would be paying at least $23 million more, PNM argues. PNM says it originally planned to ask the state to adjust rates based on those investments in 2020 and 2021, however the COVID-19 pandemic and a potential merger with Avangrid delayed their plans.
Savings to customers are still possible…
Even if PNM is able to hold off on issuing bonds, customers are still going to see some benefit from the shutdown of the San Juan Generating Station, both O’Connell from Western Resource Advocates and Sandoval from PNM say.
“Customers will see a benefit from the plant shutting down whether the rent credit is issued or not,” O’Connell says. “Because fuel costs for the coal plant will come off of our bills.”
With the shutdown, PNM no longer has to pay for coal. That savings is directly passed on to electricity customers.
For the average residential customer, they’re likely to see a $3 to $4 reduction in their monthly bill, Sandoval says. That would begin in January of 2023, several months after the San Juan plant is expected to shut down.
Additional savings could come if the state’s Public Regulation Commission forces PNM to issue rate credits.
If PNM issues a rate credit for the shutdown of one unit of the power plant (San Juan Unit 1), residential customers could get between $1.63 per month and $4.25 per month in credit, according to testimony from Michael Settlage, a Pricing Principal for PNM . The average residential bill would get $1.63 in savings per month.
If PNM issues a credit for the shutdown of both power plant units and related equipment, customers could get $6.93 to $18.08 per month in savings, according to Settlage. Average households that use about 600 kWh of electricity could save roughly $6.93 each month.
Sandoval from PNM says that if the regulation commission forces them to issue credits, it would ultimately hurt customers. That’s because it could impact PNM’s credit rating and ultimately cost PNM more to finance projects in the future — and that increased financing cost could be passed on to electricity customers.
Rate hike inevitable
PNM says it isn’t against issuing bonds. However, the company suggests it wants to wait to issue bonds until the next time the state’s commission adjusts their electricity rates, a process that could begin at the end of this year and conclude around 2024. Sandoval says waiting would still pass savings on to customers, and at the same time help offset a likely increase in the price New Mexicans will pay for electricity.
In the coming years, there will be an increase in the rate customers pay for electricity, Sandoval says. Issuing bonds will generate $144 million in savings, but the cost to upgrade the state’s grid — around $1.2 billion — far outweighs that.
“There’s no way that the $1.2 billion gets razed by $144 [million] in saving from the San Juan plant,” Sandoval says. “So, there will be an increase [in electric rates.]”
And it’s not clear exactly how much your bill might increase. After all, PNM is still incurring costs to run all of its operations, all of which factor into customers’ bills. PNM will have a better idea of those costs when it asks the state to adjust its rates, likely later this year.
“We’re kind of driving around a taxicab and the meters running,” Sandoval explains. “So, it’s when we get to a stop that we can tell you, ‘hey, this is it.'”
Sandoval estimates that it might be an increase of a few dollars for the average home. The last time PNM asked the state’s Public Regulation Commission to adjust rates was in 2016.
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The San Juan Generating Station before shutdown. Image: KRQE News 13
Why is PNM making a transition to cleaner energy?
The shutdown of the San Juan Generating Station is, in part, a piece of the state’s Energy Transition Act. The act aims at getting the state to operating on 50% renewable energy by 2030. It aims to reach 80% renewable energy production by 2040, according to the New Mexico Department of Workforce Solutions.
“Although the [San Juan Generating Station] plant has been a reliable, reasonably priced source of electric energy and significant operating reserves for the PNM system for four decades, this coal generation plant is a large source of carbon emissions,” the utility company wrote in their 2019 application to decommission the San Juan Generating Station. “Retiring this coal-fired facility results in environmental as well as economic benefits for customers.”
While PNM is clearly looking to shut the plant, there’s no hard deadline for doing so. Their original application to decommission set a soft deadline of July 1, 2022. But just a few months ago, PNM gave notice that they planned on delaying the shutdown until the end of September 2022.
“Based on a shortfall in anticipated replacement resources for [the San Juan Generating Station], there is a need for continued operation,” PNM wrote in their filing. They said they’ll need one boiler of the plant to keep operating in order to meet electricity demand in the summer of 2022.
Those “replacement resources” are the new, cleaner energy systems PNM plans to use to replace the plant once closed. These include several large solar power installations. But PNM filings claim that delays, such as supply chain issues, mean that it could take until May 2023 to get all the replacement solar projects more or less fully operational.
Not the first coal-fired plant to wind down
The San Juan Generating Station isn’t alone in its march towards being decommissioned. The Four Corners Generating Station, a 20-minute drive south of the San Juan Generating Station, is also being wound down.
PNM has a minority stake in the Four Corners plant. But most of the operation is run by Arizona Public Service Co. As it’s name implies, the company provides electricity to more than 1 million homes in Arizona, according to their service data.
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The Four Corners Generating Station with Morgan Lake behind the plant Near Shiprock, New Mexico. Image: KRQE News 13
Like the San Juan Generating Station, the Four Corners plant is currently running on two units (it has five total units). The operator plans to switch those two on and off as necessary to meet demand, starting in 2023, according to a press release. Doing so would cut the plant’s carbon emissions by 20% to 25%, they estimate.
PNM has been trying to abandon its interests in the Four Corners plant. It owns 200 megawatts worth of electricity generation at the Four Corners Powerplant. But the state’s Public Regulation Commission (PRC) denied PNM’s initial application to abandon the plant after PRC staff argued that PNM didn’t come up with a plan to replace the lost power generation.
Now, the issue is in front of the state’s Supreme Court. PNM is trying to appeal the PRC’s decision and thereby move forward with the abandonment of the Four Corners plant. PNM is also seeking around $271 million in financing to help cover abandonment costs for the Four Corners plant.
Abandoning the Four Corners plant, PNM argues in court documents, would save customers anywhere between $30 and $300 million over the next twenty years.
The public can give input
In May, the Public Regulation Commission will hold a hearing about the abandonment of the San Juan Generating Station. The meeting will start at 9:30 a.m. on May 19, 2022.
The public can provide written or voiced comments on the issue. More info can be found here, on the PRC’s website.
Following the public comment hearing, the PRC will hold evidentiary hearings each day from May 26, 2022 to May 26, 2022. The public can watch live on the PRC’s YouTube page.