February 24, 2022

PRC says PNM has the authority to continue operations of San Juan Generating Station

Hannah Grover/NM Political Report

The San Juan Generating Station sits idle on July 6 following a cooling tower collapse.

The New Mexico Public Regulation Commission has agreed that Public Service Company of New Mexico (PNM) can continue operating unit four of the San Juan Generating Station after July 1 in an effort to prevent power shortages during the summer peak.

The PRC unanimously approved an order on Wednesday that found PNM has the right to continue operations and that past commission orders granting abandonment and financing for the plant’s closure did not require the operations to end on a set date.

The order is not a full endorsement of PNM’s plan, but rather an acknowledgement that PNM has the authority to continue operations and that nothing in the Energy Transition Act or past commission orders requires the utility to end operations on June 30.

The order further states that costs incurred to continue operations will be considered in the future.

This order comes as utilities are facing challenges securing resources due to disruption in the supply chain. In terms of PNM, that means solar projects intended to replace the power the utility currently receives from the San Juan Generating Station have been delayed. 

While the commissioners supported the use of the coal-fired power plant through the summer to prevent blackouts, several of them expressed concerns about the impacts that could have on ratepayers and PNM’s messaging about the potential for power shortages.

Related: PNM asks to continue San Juan Generating Station operations through September

New Energy Economy, an advocacy group and vocal critic of PNM, did not outright oppose the continued operations, but argued that a discovery process is needed to answer questions about how much it will cost and how that will impact customer bills.

“While there was no way to anticipate COVID-19 and the supply chain issues it has created, other utilities have been able to effectively manage their portfolio transitions and reserve margins,” the response filing states.

New Energy Economy also highlighted minutes from an investor meeting on Feb. 3 where PNM’s CEO said that the utility would have resources to cover the summer peak.

Commissioners highlighted that portion of New Energy Economy’s response and expressed concerns about PNM’s messaging.

New Energy Economy was not alone in expressing concerns about the impacts that the continued operations of unit four could have on customers. Several of the intervening parties echoed those concerns in their response filings.

PRC counsel Michael Smith said the actions that PNM takes to keep unit four operating will be subject to a prudence and reasonableness review later. That review will look at the cost impacts and if PNM should be allowed to recover those costs from customers.

Commissioner Jeff Byrd said the extension of unit four operations “appears to be a Band-Aid fix” and that the PRC does not have assurance that the same situation will not arise next summer.

PNM has stated that it may not have enough power in 2023 to meet demand after one of its leases for energy from the Palo Verde Nuclear Generating Station expires. The PRC approved replacement resources in the Palo Verde case earlier this month.

“PNM will always work to serve PNM customers regardless of regulatory outcomes,” PNM Vice President of Generation Tom Fallgren said in a statement about the continued operation of unit four. “While this was not PNM’s original plan, we are relieved that the Commission acted promptly on our solution. We also will continue to pursue alternatives for serving customers to address ongoing new resource delays in 2023 as well.”

The PRC is continuing to look at the impacts the global supply chain has had on resource adequacy for regulated utilities throughout the state.

“This is not a short-term circumstance,” said Commission Vice-Chairwoman Cynthia Hall, who is involved in the regular discussions about the supply chain. “We’ll have the kinds of climate disruptions going on in the future. We can expect the supply chain to improve. The supply chain is causing delays, but we can anticipate that those delays will be caught up, not in the short term, possibly in a year or two.”

Utility-funded analysis looks at resource adequacy in the future

The potential for electricity shortages comes as utilities work to transition away from fossil fuels. Environmental advocates and utility experts say this is a crucial decade. But this transition will not come without its challenges, some of which are exacerbated by climate change. 

PNM, Arizona Public Service Company, El Paso Electric Company and other utilities contracted the firm Energy and Environmental Economics, or E3, to analyze resource adequacy amid the transition away from fossil fuels. The resulting report, released earlier this month, found that increased demand and retirement of resources could create a 3.8 gigawatt capacity gap and that the existing resources will be insufficient to cover demand for about a dozen days each year. That means significant investments are needed in new resources to fill that gap and ensure regional reliability in the future. 

If those new resources are not developed in a timely manner and do not come online during the planned time frames outlined in the various utilities’ integrated resource plans, there could be power shortages or existing fossil fuel power plants will need to stay online to meet that demand, as seen with the extension of the San Juan Generating Station unit four. 

The report detailed increased demand for electricity, in part due to population growth coupled with climate change related demand, as well as the retirement of traditional generation assets like coal-fired and natural gas power plants and ongoing drought or aridification decreasing the hydroelectric output. Demand will also increase as more people turn to electric vehicles.

Adding only solar will provide little capacity value because, once the sun goes down, it won’t be able to meet demand. Instead, the report states that battery storage plus solar is needed.

While battery storage can be used to help meet demand during the evening and night, there has been limited deployment. At the end of 2020, the total amount of installed battery capacity was 1,650 megawatts, the report cites. In contrast, at its peak when all four units were running, the San Juan Generating Station was able to produce 1,684 megawatts of electricity.

“High-profile outages at storage facilities in the past several years serve as warnings that a technology in its commercial infancy may not perform as expected during its initial phases of deployment,” the report warns.