PNM: Going Coal-free Will Save Money for Customers

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Public Service Company of New Mexico (PNM) (Albuquerque, New Mexico) has concluded that exiting coal-fired power generation would save its customers money over the long run and could be done without damaging reliability, according to the utility's 20-year integrated resource plan (IRP) filed this summer with New Mexico utility regulators. The utility didn't definitively commit to going coal-free by 2031, but the IRP was subtitled, "Balancing cost and reliability while reducing the impact on the environment," strongly suggesting that going coal-free would be in the best interests of its customers.

The utility said it analyzed cost-effective power-supply plans under two scenarios: retiring the remaining two units of the San Juan Generating Station (SJGS) by June 30, 2022, when the coal-supply contract ends, or continuing to operate SJGS after 2022. The five-page executive summary of the IRP makes no claim that it would be economically viable to operate SJGS after 2022.

Dan Ware, a PNM spokesman, said any final decision to retire SJCS will be made by New Mexico utility regulators. "We have not yet determined when we will file for abandonment, but we will have to do so between July 1, 2018, and December 31, 2018."

PNM, a unit of PNM Resources Incorporated (NYSE:PNM) (Albuquerque), already committed to closing units 2 and 3 at the four-unit SJGS by the end of 2017. In its IRP, PNM said closing SJGS units 1 and 4 by June 30, 2022, would save customers money. Units 1 and 4 have a total generating capacity of 847 megawatts (MW), and PNM's 58% stake in those two units is equal to about 497 MW.

In a plan approved last year by New Mexico utility regulators following four years of regulatory and court proceedings, PNM agreed to close SJGS units 2 and 3 and install pollution-control equipment that kept units 1 and 4 running. It also planned to build a 177-megawatt (MW) gas-fired generator in San Juan County to replace the lost generation when units 1 and 4 closed, but that proposed project was subsequently cancelled. For more on that, see April 11, 2016, article - New Mexico Regulators Back PNM Environmental Plan for San Juan.

"The most significant finding of the IRP is that retiring PNM's 497-MW share of SJGS in 2022 would provide long-term cost savings for PNM's customers," said the plan, filed July 3. "The retirement will provide the opportunity to move from the fixed costs and baseload operation(s) associated with coal plants to resources that better match varying loads and are better equipped to work with renewable energy."

Longer term, the New Mexico utility also said exiting its 13% stake in the Four Corners Power Plant by 2031, when the coal contract supporting that plant sunsets, would be another long-term cost-saver for customers. PNM's ownership of those two units amounts to about 200 MW. If the utility is able to retire SJGS units 1 and 4 by 2022, and gets out of its stake in the FCGS by 2031, it will be out of the coal-fired generation business. FCGS is operated by Arizona Public Service Company (APS) (Phoenix, Arizona), a unit of Pinnacle West Capital Corporation (NYSE:PWN) (Phoenix).

While the New Mexico Public Regulation Commission (PRC) (Albuquerque) does not need to approve PNM's long-term resource plan, before the utility tries to implement any of the options it is considering such as closing plants or building new generation, it will need the PRC's approval, PNM spokesman Ware said in an interview.

In its IRP, PNM observed, "Energy needs are changing, and replacing coal supply with renewable energy, and more flexible generators will save money for customers in the long run. The analysis found that exiting PNM's 13% share in the Four Corners Power Plant after the coal supply agreement expires in 2031 would also save money for PNM's customers. This action would eliminate all coal-fired generation from PNM's resource portfolio."

PNM has been greening its generating portfolio for years, and it looks like there will be more of that in the future. The utility has 302 MW of wind power under contract and owns about 107 MW of solar generation. The utility also is building three solar generating facilities that will be dedicated to powering a Facebook data center. Those three solar farms total about 30 MW.

There could be more solar generation after 2022. In a separate renewable energy filing with the state's PRC, the utility sought approval to build an additional 50 MW of solar generation. Later this year, Ware said, the utility plans to issue a request for proposal (RFP) for replacement generation whose date of commercial operation will be tied to the closure of SJGS units 1 and 4 in 2022.

"At this point, we don't have a preferred portfolio of resources we want to acquire in the RFP," Ware told Industrial Info Resources. "We want resources that are reliable and cost-effective. Maintaining system reliability may require siting some replacement power near loads. Transmission costs are an element of the replacement power portfolio that will be considered."

After 2022, the utility would like to meet its customers' electric needs with a diverse mix of supply- and demand-side resources. On the supply side, the utility is considering gas-fired generation, solar generation and electricity storage. On the demand side, the IRP said PNM has identified 60 MW to 80 MW of cost-effective demand reduction (DR) opportunities as well as additional energy-efficiency programs.

Although PNM said eastern New Mexico has good-quality wind resources, there are no available transmission lines to bring that wind power to Albuquerque and other customer areas at this time. But the utility is considering several transmission projects, as well as the potential benefits and costs of joining a multi-state western power market.

Another piece of the resources portfolio post-2022 could be an upgrade of the Reeves Generating Station, a three-unit facility that began operating in the 1950s. PNM will conduct an economic assessment of options for the Reeves plant, which could include an upgrade that turned the simple-cycle generators at Reeves into combined-cycle generators, Ware said. "Regarding Reeves, the issue is cost effectiveness. So it looks like in the short term, we'll be studying whether or not it will be cost effective to maintain Reeves versus replacing it with more flexible capacity."

Aside from PNM's resource-planning process, there are signs New Mexico's regulatory environment is turning greener. Late last month, Western Resource Advocates (Boulder, Colorado) and the New Mexico Attorney General's office presented the PRC with a plan to reduce carbon dioxide (CO2) emissions by 4% annually through 2040. The PRC's commissioners will have to decide whether to open a rulemaking process on that proposal. In a separate move earlier this year, two state senators proposed revising the state's Renewable Portfolio Standard (RPS) to require PNM to get 80% of its electricity from renewables by 2040, up from 20% by 2020, which the utility is on track to meet. That measure was not adopted by the state's legislature.

"Like other electric utilities around the country, PNM is spending a lot of time, effort and money to determine how best to serve customers reliably and at the lowest cost while also protecting the environment," said Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "More than ever, achieving that balance is a complex, dynamic challenge. PNM's analysis really shows how rapidly the electricity market is changing."

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