More Coal and Nuclear Can Replace Retired Generation, State Supreme Court Rules

The Supreme Court for the state of New Mexico affirmed a final order by state regulators to allow Public Service Company of New Mexico (PNM) to replace lost generation from two shuttered units at its 1,800-MW coal-fired San Juan Regional Generation Station with coal and nuclear resources.

The case stems from a petition filed by Santa Fe–based environmental group New Energy Economy (NEE) appealing a final order issued by the New Mexico Public Regulation Commission (PRC). The group contended that the regulatory body violated state law by granting PNM certificates of public convenience and necessity (CCN) to acquire new generation to replace the two units, which were retired in December 2017. The appeal also contested PRC’s notice proposing to dismiss protests to PNM’s 2014 integrated resource plan.

But in a March 5 opinion authored by Chief Justice Judith Nakamura, the court ruled that NEE’s arguments were “predicated on a mistaken understanding of the law,” adding that the group asked the court to “accept factual assertions that were rejected.”

Public Service Co. of New Mexico (PNM) closed Unit 2 and 3 of the four-unit San Juan Generating Station (SJGS) near Farmington, New Mexico, in December 2017. Unit 2 came online when the plant opened in 1973 and is the oldest unit at San Juan. Unit 3 began operation in 1979. The shutdown of these two units will result in the reduction of energy generation of approximately 836 MW. PNM plans to replace the loss in generation with a diverse mix of increased renewable energy, existing nuclear power, natural gas generation, and increased power capacity from Unit 4. Courtesy: Kip Malone/PNM

Public Service Co. of New Mexico (PNM) closed Unit 2 and 3 of the four-unit San Juan Generating Station (SJGS) near Farmington, New Mexico, in December 2017. Unit 2 came online when the plant opened in 1973 and is the oldest unit at San Juan. Unit 3 began operation in 1979. The shutdown of these two units will result in the reduction of energy generation of approximately 836 MW. PNM plans to replace the loss in generation with a diverse mix of increased renewable energy, existing nuclear power, natural gas generation, and increased power capacity from Unit 4.
Courtesy: Kip Malone/PNM

A Long-Standing Dispute

The decision resolves a lengthy dispute that involves a number of stakeholders, including state agencies, the governor, and the utility. As Nakamura noted in the court’s opinion, “The record in this case is comprised of seventy-six volumes that contain nearly 50,000 pages. It is, as PNM points out, ‘massive’.”

The dispute began as PNM warned it would be forced to shutter two of four units at the San Juan coal plant after the U.S. Environmental Protection Agency (EPA) in August 2011 rejected the state’s implementation plan (SIP) for regional haze. The utility said the EPA’s imposed federal implementation plan (FIP) would require it to install “extremely costly” emission controls on all four plant units. After lengthy discussions, including public meetings, several state agencies—including the state’s governor, tribal leadership, and PNM—identified alternatives, and the state submitted a revised SIP.

That SIP essentially required PNM to retire two units (Units 2 and 3—a total 836 MW) at San Juan, install pollution controls on the remaining units, and replace lost generation capacity with resources minimizing impacts on visibility. But though the SIP was accepted by the EPA in May 2014, disagreements quickly surfaced about PNM’s plans to replace lost capacity with 134 MW from the 1,330-MW Palo Verde Nuclear Generating Station Unit 3 in Arizona (at which it has capacity rights) and 132 MW more from San Juan Unit 4. A PNM spokesperson told POWER on March 6 that the 132-MW allocation of power from Unit 4 was acquired January 1, 2018, from several California-based partners in association with the retirement of Units 2 and 3. Together Units 1 and 4 produce 847 MW.

The utility’s application to the PRC garnered 16 intervenors, among them environmental, industrial, and consumer advocates. PNM also separately filed applications to build a solar photovoltaic facility and a gas peaking plant to make up for lost capacity.

The issue grew more contentious as a hearing examiner appointed by the PRC to address the merits of PNM’s plan in 2014 concluded that PNM had not shown San Juan Unit 4 was a reliable replacement resource. However, it recommended that the measure be approved after PNM in August 2015 addressed the examiner’s concerns about Unit 4 and submitted a supplemental stipulation.

While PNM still moved to retire San Juan Units 2 and 3 in the supplemental stipulation, it also proposed to evaluate a request for proposals for all energy sources identified in a 2017 integrated resource plan under the hypothetical assumption that San Juan would be fully retired after 2022.

The PRC issued a final order in December 2015 approving PNM’s supplemental stipulation. That order was the subject of NEE’s appeal on which the state supreme court issued a decision on March 5.

At Dispute: Risk and Costs of Coal and Nuclear

The court noted that it reviewed the case with “heightened scrutiny,” in tandem with a statement it made after it rejected an NEE writ of mandamus during the course of administrative proceedings that asked the court to order several PRC commissioners to recuse themselves from the CCN proceedings on the grounds that the commissioners were allegedly biased in favor of PNM.

The court also thwarted a number of NEE’s arguments, including that PNM failed to consider or reasonably assess replacement resources such as wind, solar, and natural gas, which it said were “less costly and less risky” than coal or nuclear. “PNM did consider renewable resources when attempting to determine the most cost-effective replacement generation resources,” the court ruled. “The evidence presented persuaded the [hearing examiner] that utilizing Palo Verde Unit Three and obtaining additional power from San Juan Unit Four was the most cost-effective choice. We will not second-guess this determination.”

The decision also pointedly addressed NEE’s contention that solar and wind facilities would produce cheaper power than coal and nuclear, arguing that the hearing examiner should have considered the varying resources at a “levelized cost.” PNM responded that levelized costs analyses are inappropriate when “comparing technologies with different production profiles, such as dispatchable generation to variable or intermittent generation.” The court noted that the debate is a “paradigmatic fact inquiry that requires technical expertise to comprehend and resolve,” and it ruled: “NEE’s arguments give us no reason to second-guess the [hearing examiner’s] cost assessment for any given resource.”

In its ruling, the court also stood by the hearing examiner’s assessment that the supplemental stipulation provided “varying mechanisms” to cut risks associated with the San Juan coal and Palo Verde nuclear plants. NEE’s claims that “significant unknowns and unquantified risks that include financial, reliability, operational, and anticipated environmental regulations” affecting the two plants were inconsistent with the record, the court said.

For PNM, the court’s unanimous ruling affirms that “there was ample evidence to support the Commission’s approval of the settlement in our case, which was fairly negotiated by the parties involved and provides benefits to PNM customers and the state,” the company told POWER on March 6. “Additionally, the ruling shows that the Commission’s decision was reached through a transparent process in which the public could participate. PNM will continue to work in the best interests of our customers and the state as we transition to cleaner, more sustainable resources.”

As of December 31, the day that PNM shut San Juan Units 2 and 3, the company’s portfolio was 35% coal, 35% natural gas, 15% nuclear, and 15% renewables. Forecasts for 2018 call for  renewables’ share increasing to 17%, nuclear 16%, natural gas 16%, and coal’s share falling to 29%.

 

—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)