How San Juan Generating Station went from powerhouse to possible closure

FARMINGTON — One of the biggest issues looming over San Juan County is the potential closure of the San Juan Generating Station in 2022 — about 20 years before the end of its useful life.

Prior to the announcement in 2017 that the San Juan Generating Station would close in 2022, the majority owner, the Public Service Company of New Mexico, had planned to keep units 1 and 4 open through 2053. The other two units closed in 2017.

The coal-fired generating station provides power to an estimated two million customers in the southwest United States through owners like PNM, Tucson Electric Power and the Farmington Electric Utility System.

The closure is expected to have a severe economic impact on San Juan County.

“We’re looking to lose coal,” Farmington Mayor Nate Duckett said during a City Council meeting on Aug. 14 as the city considered raising gross receipts taxes. “Not if, but when... and that is going to have dire consequences for schools across the state, for the city here, for San Juan County. It’s going to be ugly. So the situation we’re in now doesn’t get better before it gets worse.”

The impact of the closure will come from lost taxes, lost jobs and lost investment in the power plant.

“It’s a very sad moment for us to consider that one entity has this type of economic impact on a region, a state, a city, a county, schools, whatever,” Duckett said. “It’s incredible. It is absolutely incredible.”

In addition to lost taxes and jobs, Farmington will have to replace the electricity that it receives from the generating station.

Farmington began receiving electricity from the San Juan Generating Station in 1982 when the fourth unit was completed. In July, the Farmington Electric Utility System — which provides electricity to every part of San Juan County except the city of Aztec, which owns its own electric utility — received about 19 percent of its power from the San Juan Generating Station, according to the city's monthly report.

The anticipated financial impact of the planned closure has left local leaders scrambling to find answers.

More:Lawmakers' meeting focuses on closure of generating station

A study commissioned by Four Corners Economic Development estimates closing the San Juan Generating Station and the accompanying San Juan Mine, which supplies all the station's coal will lead to more than $105 million in lost wages in San Juan County and nearly 1,500 lost jobs.

The average salary of the mine and power plant workers is $86,000 annually, and the average worker is 47 years old, according to the study.

The study also estimates that companies who supply the mine and power plant with equipment will lose $31.7 million, and San Juan College students will lose $115,000 annually in scholarships supplied by the plant and the mine. United Way is estimated to lose $150,000 in donations from the plant and the mine.

The state and region also will lose property and severance taxes.

The San Juan Mine pays $6.5 million in severance, conservation, gross proceeds and resource excise taxes each year, and closing the mine will result in a reduction of the state’s coal tax revenues to $3 million annually. In fiscal year 2014, the state received $16 million in coal tax revenue total.

Employees at the plant and the mine pay about $1.9 million in state income taxes each year.

San Juan County receives 10 percent — $3.8 million — of its property tax revenue from the coal mine and power plant.

The Central Consolidated School District faces the loss of $3.6 million in property tax revenue from the closure of the two entities. It currently has $37 million of outstanding bonds. That means property taxes could increase in the Kirtland area to meet the bond requirements, local officials warn.

San Juan College currently receives $2 million in property tax revenue from the mine and power plant.

More:Pearce says he would work to keep San Juan power plant open if elected governor

At its peak, the San Juan Generating Station had the ability to produce 1,684 megawatts of power, according to Public Service Company of New Mexico documents.

PNM is the majority owner of the power plant. Units 1 and 2 of the San Juan Generating Station can each produce 340 megawatts of electricity. Unit 3 produced 497 megawatts, and unit 4 produces 507 megawatts.

Units 2 and 3 were retired at the end of 2017.

Each unit has a different ownership breakdown. In 2014, PNM owned 783 megawatts of capacity spread out over all four units. Tucson Electric Power owned 340 megawatts in units 2 and 3. M-S-R Public Power Agency, located in Modesto, California, owned 146 megawatts in Unit 4. The Farmington Electric Utility System owned 43 megawatts in Unit 4. Tri-State Electric Utility owned 40.7 megawatts in Unit 3. Los Alamos County owned 36.5 megawatts in unit 4. The Southern California Public Power Authority owned 207.3 megawatts in Unit 3. The city of Anaheim, California, owned 50.9 megawatts in Unit 4. Utah Associated Municipal Power Systems owned 35.6 megawatts in Unit 4.

A 2013 stipulation led to Units 2 and 3 being closed in 2017. The ownership of the remaining units also has changed.

Closing units 2 and 3 reduced the capacity of the San Juan Generating Station to 847 megawatts.

PNM owns 170 megawatts in Unit 1 and 327 megawatts in Unit 4. TEP owns 170 megawatts in Unit 1. FEUS owns 43 megawatts in Unit 4, and Los Alamos has maintained its 36.5 megawatts in Unit 4. UAMPS continues to own 35.6 megawatts in Unit 4, and PNM’s merchant contracts have 65 megawatts in Unit 4.

The California-owned utilities left the plant in 2017 after 2015 legislation required them to divest from coal-fired generation.

The Four Corners Power Plant opened in the early 1960s. At the time, it was the largest project the Arizona Public Service Company had undertaken.

The Daily Times reported hundreds of people attended the dedication ceremony in 1963. U.S. Rep. Joseph Montoya, a New Mexico Democrat, sent a letter that was read during the ceremony.

"The Southwest is growing fast, but despite the manifold bounties of nature it takes people to make great states and to harness the forces of nature," the letter states.

A portion of the letter was published in The Daily Times, stating, "It is fortunate indeed that the Southwest possesses a breed of man who has vision and imagination."

The new power plant brought economic promise to San Juan County, where officials estimated a 2,000-year supply of coal could be found beneath the surface.

The initial plant consisted of two units that could produce 345 megawatts of electricity. Within two years of the plant opening, the Arizona Public Service Company began contemplating adding a third unit. In 1965, it joined with Southern California Edison to solicit bids for engineering and development of two additional 750 megawatt units for the power plant.

At that time, the president of the Arizona Public Service Company predicted the Four Corners would become the "energy capital of the Southwest," according to an editorial that ran in The Daily Times in March 1965.

The additional two units cost $150 million to construct and were financed by a group of six utilities in New Mexico, Arizona, California and west Texas. The entire generating station was then able to produce 2,085 megawatts of electric power. It became the biggest steam-generated power plant in existence at the time, according to The Daily Times archives.

A fifth unit was later added to the power plant.

The success of the Four Corners Power Plant and the vast coal reserves in San Juan County led industry officials in the 1960s to consider locating a second generating station near the Four Corners Power Plant.

The first unit, now known as Unit 2, of the San Juan Generating Station came online in 1973.

More:New Energy Economy questions future of San Juan Mine

By the time the San Juan Generating Station was built in the 1970s, industry officials and local leaders were already facing investments due to emissions regulations.

Construction began on the multi-million-dollar power plant in 1971. At the time, PNM President George Schreiber told The Daily Times that the companies were spending $2.7 million to purchase and install equipment that the manufacturers had ensured would exceed the state’s pollution control requirements.

The first unit, now known as Unit 2, began producing electricity in 1973. The fourth unit of the San Juan Generating Station, which is partially owned by the city of Farmington, came online in the 1980s.

Within the first decade of the plant’s operation, it came under repeated threats of fines from the U.S. Environmental Protection Agency for excessive sulfur dioxide emissions. The EPA gave PNM until Aug. 7, 1978, to reduce the plant's sulfur dioxide emissions or it would be fined $25,000 a day.

More:Officials mull options as San Juan Generating Station closure looms

At the time, the federal government required 23 percent of the sulfur dioxide emissions to be eliminated. New Mexico had an even more stringent requirement of 78 percent elimination.

In April 1978, PNM completed a $120 million installation of sulfur dioxide scrubbers on units 1 and 2 of the power plant. Installing the scrubbers on all four units cost about $500 million, according to The Daily Times archives.

The scrubbers were marketed as being able to remove 90 percent of the sulfur dioxide, according to The Daily Times archive.

At the time, PNM estimated 40 percent of the cost of operating the San Juan Generation Station would be pollution control. The new scrubbers increased operating expenses at the generating station by $10 million annually and consumed 25 megawatts of electricity, according to The Daily Times archives.

By the early 2000s, the impact of the two coal-fired power plants were visible in the air. Haze from the generating stations impacted nearby national parks, national monuments and wilderness areas. Monitors showed the air quality pushing federal thresholds.

The air quality decline led the Sierra Club and the Grand Canyon Trust to sue PNM in 2002. The lawsuit resulted in PNM agreeing to comply with regulations proposed by the New Mexico Environment Department, the Sierra Club and the Grand Canyon Trust. But the company went beyond just complying with those regulations. It agreed to spend $270 million on pollution control from 2005 until 2010 at the San Juan Generation Station.

The company planned to reduce nitrogen oxide emissions  by 35 percent, sulfur dioxide by 65 percent, particulates by 70 percent and mercury by 75 percent, according to The Daily Times archives.

The $270 million price tag grew with time. By the time the project was completed in 2009, PNM had spent $320 million on pollution control at San Juan Generating Station.

When the U.S. Environmental Protection Agency ordered PNM to install more pollution-control technology at the plant a few years later, PNM balked at the price tag.

More:Local legislators look to save San Juan Generating Station

In 2009, the state of New Mexico missed a deadline to submit a plan for addressing regional haze to the U.S. Environmental Protection Agency.

The EPA stepped in, and, in 2011, it ordered PNM to install pollution-control equipment on all four of the units at San Juan. The EPA claimed the technology would cost $345 million. PNM objected. The utility argued that $345 million was an underestimation of the actual cost. It claimed the technology actually would cost between $750 million and $1 billion.

The EPA, the New Mexico Environment Department and PNM reached a stipulation compromise in 2013 —  PNM would shutter units 2 and 3 of the San Juan Generation Station at the end of 2017, and would install emission controls on units 1 and 4 by Jan. 31, 2016.

Local leaders say they supported the plan to shutter the two units because they believed it would allow the San Juan Generating Station to remain in operation until the 2050s.

Then, in early 2017, PNM announced plans to close the San Juan Generating Station in 2022.

More:Clean Power Plan repeal won't affect San Juan Generating Station retirement plans

The possibility of closing the San Juan Generating Station to save money was announced a month before PNM released its integrated resource plan in April 2017.

The integrated resource plan is updated every three years for the purpose of identifying the most cost-effective portfolio of resources.

The 2017 plan estimated closing the San Juan Generating Station in 2022 would save the company between $80 million and $450 million over 20 years. In addition, PNM announced plans to quit using coal by 2031, when it plans to retire its 13 percent share in the Four Corners Power Plant.

Another integrated resource plan update will be completed in 2020, two years before the proposed closure of the San Juan Generating Station. The plan will be submitted to the New Mexico Public Regulation Commission,.

The 2017 plan suggested replacing energy produced by the plant with natural gas, nuclear and renewable energy.

The analysis included an evaluation of risks such as the uncertainty of fuel supplies, price volatility and the costs of anticipated environmental regulations. The company also considered the useful life of assets, potential future technologies such as storage and future energy load growth.

One reason the company cited for moving away from coal use is that the changing grid requires more flexibility.

The increase in renewable energy production means that there will be times when more energy is available than is needed according to local state legislators. When solar and wind resources are bringing energy onto the grid, less energy from fossil fuels or nuclear sources will be needed. However, when production from renewables declines, another energy source will be needed to offset the decrease in energy.

A coal-fired generating station must constantly run to be economically feasible according to local state legislators and utility directors. It cannot be started up and shut down easily and quickly. That makes it hard to pair with renewables. A natural gas power plant can be ramped up and down easier than coal.

However, the New Mexico Industrial Energy Consumers, an organization representing gas and electricity consumers in New Mexico, questioned PNM’s analysis when it filed a protest to the plan last year with the Public Regulation Commission. The protest states the integrated resource plan “appears to be more driven by PNM’s desire to be perceived as a ‘green’ company than by proven economics.”

While a single entity protested PNM’s application to build the San Juan Generating Station in the 1970s, more than a dozen organizations have intervened in the current integrated resource plan case that is being heard by the PRC.

Because utilities operate essentially as monopolies, the PRC was set up to provide regulatory oversight and keep the rates low for ratepayers in lieu of market competition. The PRC consists of five elected representatives. These five officials ultimately will determine the fate of the San Juan Generating Station.

The PRC staff has recommended the commission accept the 2017 integrated resource plan and begin with a clean slate when PNM files an application to close the San Juan Generating Station. Company officials have announced plans to file an abandonment proceeding next year that would pave the way to closing the station.

In the legislative session that begins in January, New Mexicans can expect to see bills introduced focused on providing San Juan County with economic development funds, allowing PNM to recoup some of the money invested in the San Juan Generating Station that ratepayers will not have paid off by 2022 and a revision of the state’s renewable portfolio standard.

A new governor will have taken office by then, adding another variable to the process. Republican candidate Steve Pearce has indicated he will work to find new owners for the power plant if PNM files for abandonment. 

Democratic candidate Michelle Lujan Grisham is running on a platform of transitioning to renewable energy and hopes to work with San Juan College to offer classes in installation of solar arrays. The college cut its solar program a few years ago.

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at hgrover@daily-times.