County leaders talk options for San Juan Generating Station closure response, mitigation efforts

• A 'preferred outcome' would involve selling the plant to a third party for continued coal operations through 2027.
• Other options may be through legislative action or through the Public Regulation Commission's regulatory process.
• Local leadership will fight for transitional fund contributions and to establish replacement power sources in the region.

FARMINGTON — With the closure of the San Juan Generating Station looming, San Juan County leadership and the plant’s majority owner looked unsuccessfully for legislative help in shutting down the coal-fired plant and its economic impact.

After a rejection from this year’s Legislature, local leaders are preparing for a multi-faceted approach that could respond to a dynamic situation as majority owner PNM moves toward shutting down the remaining two units, according to Four Corners Economic Development CEO Warren Unsicker.

 “Our organization is very concerned with how this affects the overall economic well-being of the community as a whole, the whole of San Juan County and all the constituents within, so we are looking at it from a very holistic perspective,” Unsicker said on March 12, adding that FCED and local leadership are “looking at it both from a plan-for-the-worst-and-hope-for-the-best (perspective), as well as trying to mitigate and keep the worst from happening, so there’s a lot of multi-faceted approaches to this big issue. We’ll put it this way — there’s no silver bullet at this point.”

Several bills regarding the plant’s closure were introduced during the 2018 30-day session, but none made it through both chambers and to the governor’s desk. Senate Bill 47, an energy redevelopment bond act that was stalled in the Senate Conservation Committee, laid a foundation for what PNM wants to do in terms of mitigation efforts for San Juan County’s economics and in terms of investment recovery for PNM, the company’s spokesman Dan Ware said.

“We had a good plan with the legislation — Senate Bill 47,” Ware said. “That was really a linchpin that would be a benefit to San Juan County — to not just the county, but to residents, and also to the company and to the environment. Unfortunately, we just kind of ran out of time. The session just ended, so we’re still reviewing what we could have done differently, so it’s too soon to tell exactly what steps we’re going to take now."

The bill would have allowed PNM to recoup investment costs in the coal-fired plant through bond sales. It also included components that would establish a $19 million economic transition fund for San Juan County and that would have PNM establish replacement power sources, such as a natural gas fired power plant, in the region.

“This bill was, we thought, a good way to (establish replacement power industries and maintain jobs) and protect our interests. And that was a major contention for the opposition,” Ware said.

Tommy Roberts, who termed out as mayor of the City of Farmington after an eight-year tenure on March 12, spoke in support of the bill during the legislative session. He said some critics saw the bill as a “soft-landing” for PNM as it moves to avoid losing approximately $350 million in stranded costs, and a means to use the Legislature to usurp the Public Regulation Commission.

Legislative intervention is one route that Four Corners Economic Development and San Juan County leadership may pursue in the future as the region prepares to mitigate the effects of the closure on local jobs and property tax income, Roberts said.

Though he was replaced on March 12 by Nate Duckett after municipal elections in March, Roberts said the city has developed mitigation plans over the course of the past year as a unit and that the direction the city goes in likely will not change significantly.

“As a city entity and as an economic development entity, we’re looking at three different ways to try to set up the future here,” Roberts said on March 12. “One is the regulatory process through the PRC, as they consider the integrated resource plan, and ultimately, probably the abandonment process that will be filed (likely this summer). Then we’re looking at the legislative process as a way to work toward the best outcome possible for the local stakeholders. Then we’re looking at a third-party sale as a third pathway to the so-called soft-landing, and we don’t know where we’re going to wind up.”

Roberts said the “preferred outcome” regarding the plant would be to continue operations in units one and four past the anticipated closure in 2022. In order to do so, PNM would have to sell its majority interest in the plant to another owner — likely a merchant buyer and potentially a foreign investor — who would continue operating the coal-fired plant until 2027, which would give the region more time to stabilize the economy to function without the coal-fired plant.

“The challenge is going to be to find an ultimate market for all of the power that can be produced from those two units — units one and four,” Roberts said. “Any company or aggregation of investors that might be interested in buying the plant would have to find end users for power, so that will be really what dictates the outcome in terms of perpetuation of ownership.”

But continuing the coal-fired operations could turn to the Four Corner’s favor in the distant future, Unsicker said. A number of similar coal-fired plants across the U.S. are closing and utility providers turning to renewable energy resources to replace the power. Renewable power can be volatile — for example, solar does not produce electricity at night — which could leave the door open for San Juan Generating Station to be a consistent provider of power to consumers across the nation.

Staying in the coal game would mean also keeping stride with advances in clean coal technology, Roberts said, noting that the San Juan Generating Station is compliant with state and federal environmental regulations. Such a move would help keep the Four Corners as a key player in the energy industry, allowing the region to continue to take advantage of its natural resources.

“It’s a resource that I think we ought not to be giving up on (coal) too early,” Roberts said. “Clean coal technology, which involves carbon capture and sequestration of (carbon dioxide), may become more economic to do as the technology evolves over time. There are all sorts of unanswered questions and possibilities out there, (and) here in this part of the world where we have an abundance of power resources, we shouldn’t be forever giving up on any one of those. There’s always the potential that these resources could become much more in favor again sometime in the future.”

If PNM moves forward with closing the remaining units in 2022, Roberts said the city will also continue to fight to have PNM invest in replacement power facilities in San Juan County to help retain property tax income and maintain jobs in the region.

Another route the county may take is to return to the Legislature next year. The 2019 legislative session will be 60 days, which is double this year’s session. After going through the process this year, PNM may bring back another bill, Ware said, though it’s too early to say for certain.

If legislation is passed regarding the plant closure’s economic impacts on PNM and the Four Corners region, Roberts said the city would want PNM to contribute to a transitional fund to help mitigate the effects of the loss of jobs and property taxes in the Four Corners.

“If (PNM) are to recover, fully recover their stranded costs, part of the trade-off should be that they would fund a transitional fund for economic development in San Juan County,” Roberts said. “Senate Bill 47 contained that element in the legislative structure. It had a $19 million contribution to a transition fund for San Juan County, and so any scenario that actually involves the closing of the plant prematurely we think should also provide for that transitional fund.”

Roberts said a transitional fund would likely be used as an endowment to fund economic development activities and Four Corners Economic Development, in part to recruit new industry to the area in continuing economic diversification efforts.

Local leadership is working all potential options at the same time, Roberts said, and both Roberts and Unsicker said preparing for the closure will likely be a moving target as PNM moves toward the abandonment process with the PRC.

“Frankly, once (PNM goes through the abandonment process), and I think it’s likely that they’ll get there, all the stakeholders in San Juan County are going to have to huddle and determine a strategy to implement during that abandonment process phase that leads us toward the outcome that we want,” Roberts said. “I think there’s a lot of work that has to be done by the stakeholders to figure out what that strategy is going to be. … San Juan County is going to have to be able to react to the evolution in the process.”

“We’re going to have to be very nimble in this whole process because it changes daily, so I think that’s one of the key take-aways — to keep pressing forward, but to be prepared to change our strategy at any given moment,” Unsicker added.

Megan Petersen covers business and education for The Daily Times. Reach her at 505-564-4621 or mpetersen@daily-times.com.