Backgrounder on Closure of San Juan Generating Station Units 2 and 3

Public Regulations Commission Case No. 13-00390-UT

By James Crawford

October 2014

A losing battle in Obama’s war on coal involving the San Juan Generating Station is occurring right here in New Mexico.  Public Service Company of New Mexico (PNM), the majority owner of San Juan, is being coerced by the government through the United States Environmental Protection Agency (EPA) and its confederates in the radical environmental community to abandon at least half of the coal fired units at San Juan.   The most radical elements want to see the whole station abandoned.  As Obama predicted our electric rates will necessarily skyrocket. 

The New Mexico Public Regulation Commission (PRC) will be holding a hearing on the proposed shuttering of two of the four coal fired units at San Juan beginning January 5, 2015.  Following is a summary of events leading up to the present time to give a little background and perspective on the upcoming hearing.

San Juan Generating Station

San Juan is a four unit coal fired electric generating station near Farmington, NM that produces 1,683 mega-watts (MW) of electricity.   PNM is the majority owner and plant operator and takes 783 MW for NM customers.  Other owners include City of Farmington, Tucson Electric Power, Los Alamos County, Utah Associated Municipal Power Systems, Tri-state Generation and Transmission Association, Southern California Public Power Authority, City of Anaheim, and MSR Public Power Agency in California.

California has banned importation of any electricity from coal fired generators.  Therefore, Southern California Public Power Authority, the City of Anaheim, and the MSR Public Power Agency have bowed out from taking any electricity from San Juan.  Tri-state Generation and Transmission has also decided to abandon their share from San Juan.

The coal needed to fuel the San Juan units comes from an adjacent coal mine operated by the San Juan Coal Company.  PNM’s current contract for coal expires in 2017.

Because of EPA dictates, PNM and the other owners have proposed closing down San Juan units 2 and 3 which generate 836 MW of electricity with PNM’s share being 418 MW.  The present issue is about how PNM will replace the 418 MW of lost power for NM customers.

The Proposal

PNM’s proposal to replace the lost electricity and account for increased demand is to take an additional 132 MW from San Juan obtained from the shares of the owners vacating San Juan; use an additional 134 MW from Palo Verde Nuclear plant in AZ that PNM already owns but has been selling on the wholesale market; building a 177 MW natural gas peaking plant; and adding an already planned 40 MW of solar; and potentially consider an additional 50 MW of solar.

Environmentalists are objecting to PNM taking any additional power from San Juan or Palo Verde. Environmentalists are objecting to PNM executing a new long term contract for coal from the coal mine.  They advocate closing all 4 units at San Juan and using no nuclear power, claiming all the power from San Juan can be replaced with renewable energy sources.

 

EPA The Villain

This whole issue arose from EPA’s excessive police brutality using the Regional Visibility Rules under the Federal Clean Air Act.  It is important to keep in mind that this case was originally about visibility in wilderness areas and national parks.  However, most of the opposition to PNM’s plan has nothing to do with visibility and visibility will not be significantly affected by the outcome. The opposition parties only care about eliminating coal and nuclear and substituting renewable energy sources. 

States are required to do EPA’s dirty work and enforce EPA rules through State Implementation Plans (SIP).  The state has to develop a SIP to implement EPA rules but the SIP must also be approved by the EPA.  The New Mexico Environmental Department (NMED) started this process long ago. 

 NMED submitted its first SIP way back in 2003 but it was never approved by EPA because of the ever evolving EPA regulations.  NMED submitted another revised SIP in 2010 but had to withdraw it before EPA approval again because of changing EPA requirements.

NMED completed a new revised SIP in February of 2011 and the New Mexico Environmental Improvement Board (EIB) held hearings and approved the latest SIP in June of 2011.  The revised SIP was submitted to EPA for approval.

Coincidently, EPA ruled that the SIP was invalid since it was not approved by 2009 as required by EPA.  EPA further decreed that because of sue and settle cases brought by Wild Earth Guardians and others, EPA was under court order to implement a Federal Implementation Plan (FIP) by January, 2011.   However, EPA did not issue the final order implementing the FIP until September, 2011 which was well after the SIP had been submitted to EPA but which was not even considered by them.  Therefore, San Juan was going to be subject to the dictates in the FIP without any due consideration of the SIP.

PNM had completed an extensive emissions remodeling of San Juan units by 2009 that cost $320 million.  The pollutions controls brought San Juan to an industry leader in mercury reduction and was used as an EPA model for other plants to follow.  All other emissions were significantly reduced as well.  Reductions in nitrous oxides (NOx) were significant and were marginally above EPA standards.  Consequently a small incremental NOx reduction was all that was needed to bring San Juan into compliance with EPA standards.

The February 2011 SIP, called for installing selective non-catalytic reduction (SNCR) emission controls on all four units at San Juan for a cost of about $80 million.  Emissions would then fall within EPA guidelines.  The incremental reduction in NOx would not result in any detectable change in visibility to the human eye.

However, the mandated FIP by EPA required installation of selective catalytic reduction (SCR) emission controls on all four units at San Juan for an estimated cost of almost $1 billion.  EPA rules require a Best Available Reduction Technology (BART) analysis for plants with emission levels like San Juan.  PNM and NMED’s BART analysis concluded that the proposed SNCR retrofit would meet EPA requirements.  EPA disagreed and ruled that SCR was better therefore making it “best technology”.  EPA dictated that SCR must be used on the four units at San Juan.  If SCR is so much better, one would think it would produce a significant improvement in visibility.  Alas, once again any improvement in visibility would not be detectable by the human eye.

Neither proposal would result in noticeable change in visibility.  It is apparent the issue never has been really about visibility but about the war on coal and global warming.  PNM has been faced with the choice of spending up to a billion dollars or closing down two perfectly good reliable generators for no detectable change in visibility.  Visibility has just been a surrogate to close down coal fired generation.

After the rejection of the 2011 SIP, PNM and the state filed suit against EPA.  After a couple years of legal wrangling, PNM, NMED, and EPA came up with a “tentative” agreement to end the legal dispute.  The agreement was to close down units 2 and 3 at San Juan and install the less expensive SNCR controls on remaining units 1 and 4.  NMED again revised the SIP to reflect the tentative agreement.   The revised SIP was approved by the EIB in September of 2013.  The tentative agreement and revised SIP is the basis of the upcoming PRC hearing.

The EPA did approve the revised SIP in September 2014 just as the filings for the PRC hearing were well underway.  PRC approval is the last step in the approval process so long as the EPA approval stands up without legal challenge by environmental groups which is yet to be seen.

EPA’s most effective emission control measure is eliminating the source.  There will still be no noticeable change in visibility!

 

Environmentalists Rule

Environmental groups were not happy with PNM’s original proposal to replace the lost electricity from shuttering San Juan units 2 and 3 and filed a series of legal blockades before the October 6 PRC hearing was to start.  Then the week before the hearing was to begin, PNM, PRC, and environmental groups entered into secret negotiations to overcome environmentalist objections to the original plan. 

The environmental groups got their way and PNM agreed to charge half of the stranded assets in units 2 and 3 to shareholders and the other half to rate payers, charge a lower price for power from Palo Verde, and consider an additional 50 MW of solar generation than previously planned.

The environmental crowd is proud that the stipulated agreement will only cost the rate payers 7% more on their monthly bills instead of the 10% that would have been added before the agreement.   However, all parties have lost sight that this case is supposedly about visibility.  If the 2011 SIP had been implemented, visibility requirements would have been met with 0% rate increase caused by stranded assets and nuclear power costs.

Not all of the environmental groups signed on to the secret stipulated agreement and even those that did reserved the right to oppose the coal contract PNM is presently negotiating.  So some of the environmental groups agree but still may disagree.  The others are in total opposition and will not be happy until all of San Juan is shuttered and no nuclear is brought into the state and only renewable energy is used to replace San Juan.

The final plan will emerge after the PRC hearing and the commission makes a decision. 

A big question is what the opposition groups will do if PRC approves the plan the way it now exists.  Even though EPA has approved the plan, EPA could very well be sued by dissatisfied environmental groups.  We could end up with another sue and settle case over failure to use BART i.e. SCR on units 1 and 4.

The full text of the stipulated agreement can be found at this link: http://files.shareholder.com/downloads/PNM/3542627798x0x784467/c35eb558-d080-4e65-9b0d-9cf8d4c74ec6/13-00390-UT%20Stipulation%2010-1-14.pdf

The PRC Hearing

The secret stipulated agreement invalidated most of the pre-filed testimony that was to be heard by PRC starting October 6, 2014.  Consequently the whole hearing process had to be rescheduled. 

Testimony in support of the stipulated agreement is due October 31, 2014.

Testimony in opposition to the stipulated agreement is due November 25, 2014.

Rebuttal testimony is due December 19, 2014.

The public hearing will begin at 0930 on January 5, 2015 and run through January 16 if needed.

Public oral comments will be accepted at the first day of the hearing and on other days at the discretion of the hearing officer.

Public written comments will be accepted up until the commission makes a final decision.

Ordinary citizen rate payers are encouraged to weigh in on the proposal.  The environmentalist groups are already well organized and petitioning the PRC to rule against PNM’s plan.  Moveon.org, the Sierra Club, and Conservation Voters of NM have already amassed thousands of signatures in opposition and are pressing for shuttering more of San Juan and substituting renewable energy.

The best solution for us rate payers is to keep operating all 4 units at San Juan after installation of SNCR emission controls on all 4 units.  Unfortunately that horse has already left the gate.   Our best hope now is to support PNM’s proposed plan and oppose any further erosion of the inexpensive, reliable electricity from San Juan.  The butterflies and fairy dust myth of being able to replace all of San Juan with intermittent, expensive, and unreliable renewable energy needs to be resisted.

Written comments must have the case number on them to identify the correct case since PRC conducts a number of hearings.  The case number for this case is:  Case No. 13-00390-UT.   The mailing address is: 

Public Regulation Commission

1120 Paseo De Peralta

PERA Building

PO Box 1269

Santa Fe, NM 87504

Oral comments can be presented at the hearing beginning January 5 at the PERA Building, 1120 Paseo De Peralta, Santa Fe.