Agreement reached, local plant to close Units 2 and 3 in 2017

Public Service Company of New Mexico has reached an agreement between the company, the state of New Mexico and the Environmental Protection Agency with regard to the continued operation of power generation at San Juan Generating Station.

PNM Vice President Ron Darnell presented this plan to the Farmington City Council during a March 5 work session. He also answered questions about the impact the plan could have on the local economy.

Under the agreement, PNM will retire coal-fired Units 2 and 3 at San Juan Generating Station by Dec. 31, 2017. The company also agreed to install selective non-catalytic reduction emission control technology on Units 1 and 4 in early 2016, so the units may continue operating without setting a retirement date, but with the knowledge that the plant “will be fully depreciated by 2052,” according to Darnell.

An aerial view of PNM’s San Juan Generating Station’s four units, two of which will close by Dec. 31, 2017.

The state of New Mexico has agreed to submit a revised state implementation plan, including a Best Achievable Retrofit Technology, or BART, determination for nitrogen oxides, NOx, for the plant and to be submitted to the EPA for approval, Darnell explained.

“PNM’s perspective is this will lead to more balanced fuel mix for PNM. Right now we are 60 percent coal and with retirement of the two units we will be 40 percent coal,” Darnell said of the plan. “It is not our intention to get out of coal, but we are more comfortable with 40 percent.”

Councilor Jason Sandel asked how much power historically has been generated from Units 2 and 3, and how much coal it takes to generate the electricity.

Plant Manager Greg Smith said Unit 2 has generated 375 megawatts, while Unit 3 generates 544 megawatts. Both operations use about 3 million tons of coal per year.

“What we are looking at is a loss of using that 3 million tons per year to generate approximately 919 megawatts of power per hour,” Sandel said, asking who buys the power from PNM.

“That electricity goes onto the grid and supplies power to the entire state of New Mexico – not just to our customers, but it flows into Arizona, Colorado, California,” Darnell said, explaining that under California law that state can no longer invest in coal-fired power operations. California, however, does have ownership in both Unit 3, which will close, and Unit 4, which will remain operational.

 

An impact on the economy

 

Sandel wanted to talk about the impact this agreement would have on the local and state economy. He went back to the discussion about coal and asked whether the loss of 3 million tons of coal production in a year would hurt the state.

 “Yes, there are a number of revenue streams related to coal consumption,” Darnell said.

“So the closing of Units 2 and 3 will reduce electric generation capacity inside the state of New Mexico by 919 megawatts per hour and there will be a reduction in payments to the state for the drop in transmission and the drop in utilization and the extraction of coal,” Sandel said. “Somewhere in this agreement, I still haven’t seen the net decrease to New Mexico and what our communities face by this. I’m looking at the direct reduction. We are losing something here.”

Darnell said the EPA doesn’t look at the loss of revenue in local communities, when making decisions about environmental regulations.

“I don’t care about the EPA,” Sandel said. “I care about the dollars and cents around this deal that our state is promoting that has a strong impact on our communities we live in and I’m frustrated that our community hasn’t been involved. I’m trying to understand what this will do to local economy and what it will do to our friends and neighbors who are relying on this activity.”

Sandel wanted to know why this deal was good for New Mexico and for San Juan County.

The deal was good for PNM, according to Darnell, who said “I don’t think there was another alternative.”

The company had to take its shareholders into account and be sure earlier proposals to the EPA would not fall through. “There was certainly an evolution of PNM’s thinking about this. Part of that was informed by dealings with the EPA and not being successful. As time went on we were concerned about our ability to prevail in court and prevail on the state implementation plan,” Darnell said.

Cost became a concern and coal contracts were ready to be renegotiated along with the possible implementation of future environmental regulations. “We thought it would be better to attempt to negotiate a compromise. From the viewpoint of what is best for our shareholders and customers, we felt the alternative was something we had to agree to,” Darnell said. It also was difficult to justify investing more than a billion dollars into an aging facility.

Along with the environmental regulations and need for retrofitting the plant with pollution control devices, Darnell explained the service territory has experienced “flat to declining growth.”

 

The politics of it

 

“I for one wish that would have been a priority for the governor,” Sandel said. “I’ve said several times if this were a military base being blocked off by a closure, we would have groups of businesses and senators working together to save what we have and change our mission. I feel left out.”

He said it was his desire to insure the community’s future, instead of sitting back and watching coal get eroded away. “We are missing the boat.”

Councilor Dan Darnell said coal has been “demonized” by the federal government. “I think it is kind of short-sighted to say the state of New Mexico and the governor’s office haven’t worked hard on this issue.  They have worked shoulder to shoulder with PNM and shoulder to shoulder with residents of San Juan County.”

Sandel pointed out the federal regulations regarding regional haze were adopted in 1990 under a completely different president’s administration. At that “the power generation lobby asked for a delay in the air quality issues. It is not the current administration. It’s been a long time coming, and here we are today dealing with those (issues),” he said.

In addition to the unit closures and implementation of technology, PNM also has committed funding to the community to offset the financial impacts of the closures. This includes a $1 million payment over five years to the Navajo Nation for job training and $150,000 over three years to Four Corners Economic Development, a non-profit organization developed to diversify the region’s economy.

Sandel asked how the $150,000 would be used. “It is intended to be used for Four Corners Economic Development. Also, our CEO will sit on the board,” Ron Darnell said.

“Why was that organization selected,” Sandel asked.

“I don’t know of another organization,” Ron Darnell said.

Sandel asked what led PNM to select Four Corners Economic Development and whether Darnell was aware of a proven track record for success.

“I am not aware of any other organization involved in economic development up here,” Ron Darnell said. “That is part of their charter, to diversify the economy up here. … It would seem diversification of the economy would be a good objective.”

Mayor Roberts stated PNM was approached by Four Corners Economic Development and asked to join the organization’s membership. The $150,000 actually was the membership dues. “I thought their participation was separate from the Haze Rule. Now, it is being touted as a part of the settlement.”

Ron Darnell admitted the decision was made before the agreement with the EPA, but it was included in the plan to “memorialize” PNM’s participation. “We are interested in the development of Farmington and the economic vitality of Farmington. It is in the state’s best interest for Farmington to have a strong economy,” he said.

Sandel said he wondered about the $150,000 being a membership fee, and asked if any of it would be dedicated to replacing the jobs that will be lost at PNM during the next few years.

 “I think it’s a really good group. You are trying to drag me into local politics,” Ron Darnell said.

“I’m trying to understand what these funds are going to be used for in this community. Our token is $150,000 for an organization that we don’t have any influence over,” Sandel said. “We’re losing 100s of megawatts of power and jobs. That doesn’t seem to me as a City Councilor that we are getting the bang for our buck. That is not local politics; that is me trying to represent my constituency.”

Sandel asked PNM’s representatives to come back to the Council again with more numbers, such as the jobs that will be lost through attrition at both the plant and the coal mine.

Roberts agreed it would be good to receive future updates from PNM.

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