July 7, 2023

NM Supreme Court upholds state regulators’ denial of power plant ownership transfer

The New Mexico Supreme Court upheld a decision by state regulators’ to deny transferring the Public Service Company of New Mexico’s ownership share in the Four Corners Power Plant to Navajo Transitional Energy Company.

Justice Briana Zamora wrote the unanimous opinion rejecting PNM’s arguments and upholding the New Mexico Public Regulation Commission’s denial. 

The case stems from a 2021 application filed to transfer PNM’s 13 percent ownership interest to Navajo Transitional Energy Company. This would have placed the state’s largest utility on a path to being coal-free by 2025, though environmental advocates feared that the transfer could prolong the power plant’s life, as NTEC has a vested interest in keeping it open.

The application also promised economic benefits for northwest New Mexico. PNM asked for securitization—a mechanism made possible by the state’s Energy Transition Act that allows utilities to refinance past investments into coal-fired power plants through low-interest bonds upon ending the use of the facility. Receiving securitization means some of the bond proceeds must go to funds for economic development, displaced workers and impacted Native American communities.

“We are disappointed with the New Mexico Supreme Court’s decision to uphold the New Mexico Public Regulation Commission’s order halting PNM’s early exit from the Four Corners coal plant,” the utility said in a statement Thursday following the ruling. “The Commission’s order delays PNM’s exit from the coal plant from 2024 until possibly 2031 and postpones savings for customers as well as significant annual carbon emission reductions from the coal plant through seasonal operations. Our commitment to serving our customers with zero carbon electricity doesn’t end and, while an early exit from the Four Corners coal plant would propel us forward, we remain strong in our transition to affordable carbon-free electricity.”

But the PRC was not convinced that the utility would have generation resources available to replace the electricity it receives from the Four Corners Power Plant. This was because PNM did not submit any information about what replacement generation sources it was considering.

PNM maintained that it submitted the transfer application before sending out a request for proposals for replacement projects for several reasons, including the timing constraints that regulators and the utility ran into when considering the closure of the San Juan Generating Station.

The utility argued that the proxy models and generic information based on bids received to replace the San Juan Generating Station should have been enough to satisfy the state regulators. PNM further claimed that the PRC misconstrued the Energy Transition Act to require evidence of actual replacement resources rather than just potential projects.

Zamora wrote in the opinion that the court did not find this to be the case. Instead, she states that state regulators required PNM to identify which replacement resources it was considering, not to show evidence that it had actual replacement resources selected.

PNM did issue a request for proposals prior to the PRC making its decision on the ownership transfer. While it received bids as a result, the utility did not provide state regulators with specific details about those proposed projects.

PNM argued that proxy models had been accepted in past cases as reliable evidence, but, even if that was the case, the court concluded that the utility was given sufficient notice that it should have been able to meet the requirement.

“PNM was aware of the questions raised about the sufficiency of its modeling evidence,” the opinion states.

Challenges with replacing the power from the San Juan Generating Station played into the PRC ultimate decision, as well as the Court’s ruling.

Zamora wrote that delays in deploying replacement projects for the San Juan Generating Station as well as the “nature of the generic information” provided to state regulators was enough that a reasonable mind could conclude proxy models and testimony by a PNM official on their own were inadequate to meet the requirements.

The delay in San Juan Generating Station replacement projects led to concerns about whether there would be enough electricity to meet demands during summer months when usage increases. 

One of the units at the San Juan Generating Station remained in operation past the original closure date due to these concerns. That unit closed last fall.

Nearly a year after the closure of the power plant, not all of the replacement projects have been built and PNM relied on additional purchased power from the Four Corners Power Plant and other sources to ensure it could adequately serve customers this summer. 

PNM officials tried to assure the commissioners that replacement power projects for Four Corners Power Plant would not face the same timing challenges because there would be more time to build them as the transfer wouldn’t occur until 2025. They further attributed the delays for San Juan resources to the supply chain challenges, many of which were connected to the COVID-19 pandemic.

New Energy Economy, an advocacy group that has been one of PNM’s biggest critics over the years, was among those challenging whether PNM provided sufficient details about replacement resources. Like other environmentally-focused groups, NEE feared the transfer could lead to the power plant remaining open even past its current planned closure date of 2031.

At the same time that PNM sought to transfer its ownership of the power plant to NTEC, the utility sought to merge with utility giant AVANGRID. That merger was among the reasons that PNM wanted to end its use of the Four Corners Power Plant as AVANGRID had no interest in being a partial owner of a coal-fired generating facility.

“The Avangrid merger agreement was a driving force in PNM’s rushed application,” NEE Executive Director Mariel Nanasi said in a press release Thursday. “PNM was on notice that it had to have adequate resources to replace the Four Corners Power Plant especially when they were telling the world that we were going to face brownouts and blackouts from the already closed San Juan coal plant; but PNM only had generic placeholders which the PRC, and ultimately the Supreme Court, found to be insufficient.”

The Four Corners Power Plant has several key differences compared to the San Juan Generating Station that played into the case.

For one thing, PNM is not the majority owner. That is Arizona Public Service Company and, unlike the San Juan Generating Station case, PNM’s decision to no longer receive power from the Four Corners Power Plant would not result in it closing.

Another key difference is that there are unresolved questions regarding whether investments made in pollution controls at the Four Corners Power Plant were prudent. PNM sought to refinance those investments using securitization, which would result in a non-bypassable charge on customers’ bills. Advocacy groups argue that customers should not be on the hook for imprudent investments. That is also a component of an ongoing rate case pending before the PRC.