New Mexico Regulators Back PNM Environmental Plan for San Juan

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Although the leadership of PNM Resources Incorporated (PNM) (NYSE:PNM) (Albuquerque, New Mexico) may not be fans of the Grateful Dead, a lyric from one of that band's more famous songs--"What a long strange trip it's been"--accurately summarizes the utility's four-year effort to bring its San Juan Generating Station into compliance with federal regional haze requirements.

In late 2015, after four years of regulatory and court proceedings, New Mexico's utility regulators approved PNM's plan to close Units 2 and 3 of the coal-fired San Juan Generating Station by the end of 2017. The closure of those units will remove about 418 megawatts (MW) of generating capacity from PNM's resource mix. Units 1 and 4 of San Juan will continue to operate. The generating capacity of those units is about 365 MW. The utility will install selective non-catalytic reduction (SNCR) equipment on Units 1 and 4. San Juan is located in northwestern New Mexico. PNM's share of the cost to install that environmental control technology will be about $78 million.

As part of the decision, PNM also will build a 177-MW gas-fired peaking generator in San Juan County, valued at about $189 million. Construction of that project is scheduled to begin in early 2017. The plant is scheduled to be operating by August 2018.

The regulators also allowed PNM to bring into ratebase 134 MW of generating capacity from the Palo Verde Nuclear Generating Station, located west of Phoenix. PNM already is a partial owner of Palo Verde, but it had previously leased capacity at that plant. Allowing PNM to ratebase its ownership will help the utility increase earnings in future years.

"We are very pleased to have Commission approval of the agreement," Pat Vincent-Collawn, PNM Resources' chairman, president and chief executive officer, said last December after the state's utility regulatory panel made its decision. "The record for this case...has demonstrated our continued commitment to customers to provide reliable, affordable and environmentally sustainable power. This plan not only represents the least-cost alternative for compliance with federal environmental regulations, but also protects the economy of the Four Corners region and the state."

Emissions from San Juan were blamed for impairing the visibility in federal parks and wilderness areas in the Southwest. Back in 2011, the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) ordered PNM to install selective catalytic reduction (SCR) equipment at all four units of San Juan, which would have cost up to an estimated $1 billion for a plant built in the 1970s. For more on that, see August 16, 2011, article--EPA Orders San Juan Power Station to Install SCR Equipment to Improve Visibility in Four States. In 2013, PNM proposed closing two units of San Juan and installing the less-expensive SNCR equipment at the other two units. For more on that, see October 31, 2013, article--PNM Sees Future with More Solar, Gas and Nuclear Generation.

Vincent-Collawn credited the state's governor, Susana Martinez, the Navajo Nation and community leaders with providing important leadership in developing and advocating for the lower-cost compliance plan that had more environmental benefits than the original EPA plan. Notably, shutting down two units of San Juan will reduce several pollutants, including mercury and carbon, as well as reduce water use, an important factor in New Mexico's arid climate.

The deal also included a commitment by PNM not to reduce staffing at San Juan despite the closure of two units. Native Americans from the Navajo Nation comprise a sizable percentage of employees at the power plant and the nearby coal mine that feeds it. Unemployment is very high on the Navajo Nation, and the prospect of layoffs at the mine or the plant would make a difficult employment situation that much harder for Native Americans

"The agreement approved today is the result of substantial work done by many parties," Vincent-Collawn said December 16. "I appreciate the collaborative effort that brought forth the best solution to a complex problem, along with the tenacity of those parties to continue to work on this solution during the course of the two years that it took to gain approval."

The compliance plan will lower PNM's reliance on coal and increase its use of natural gas and renewables in its generating capacity and its energy. But the utility faced years of criticism from environmental advocates who wanted to shut down all four units at San Juan and replace them with renewable energy.

Click on the icons at right to see how the regulators' decision will change PNM's generating capacity and energy.

"The proposal faced loud opposition from environmental and community activists," said Amy Miller, PNM's director of community, environmental and local governmental affairs. "We were a little taken aback, since our proposal would have brought greater environmental benefits at a lower cost" than the approach the activists wanted.

The utility conducted market research in 2014 and 2015 to better understand what its customers knew, and what they wanted, as it related to San Juan. "Most respondents did not understand that retiring coal plants and replacing with renewables would cost more," Miller told an industry conference last month. "Most [of those polled] initially agreed with opposition argument that PNM needed to aggressively change resource mix now. But when discussions occurred around price and reliability, they agreed with [the utility's] more cautious approach. This helped us frame our messages."

Miller said the San Juan ordeal contained a number of important lessons. "Be proactive and lead the discussion with stakeholders and the media," she said. "Be prepared to respond to misinformation and attacks. Simplify your language as much as possible. Find different stakeholders' pain points. Despite (our) cautious culture, we learned that sometimes fighting back was critical."

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