Bonds would cover costs of closing coal-fired New Mexico power plant

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Efforts to keep coal-fired power plants running in northern New Mexico and Arizona are hitting a wall of environmental liabilities that make the plants difficult to sell and costly to operate.

In New Mexico, the state Senate has approved Energy Transition Bonds to finance retirement of the San Juan Generating Station in the state’s northwest corner. Securitizing the shutdown would give the plant’s public and private owners an exit strategy as the state aims to replace coal-fired power with renewable energy.

Opponents of Senate Bill 489, the so-called Energy Transition Act, say that closing the plant will have a devastating economic impact and others said the bonds represent a "blank check" to the utilities.

Under SB 489, the state would authorize a fee on ratepayers to back the bonds to cover the cost of mothballing the plant. The bill does not specify an amount of bonds that could be issued but limits maturity to 25 years. The state would not be liable for debt service.

The utilities that own the plant, primarily Public Service Co. of New Mexico, would also fund programs to help unemployed workers.

The city of Farmington, New Mexico, part owner of the SJGS, sought an agreement with a New York-based investor to take over the plant after Public Service Company of New Mexico and most other co-owners halt power purchases in 2022.

"We have an incredible opportunity to save 1,600 jobs and reduce CO2 emissions at SJGS by 90% through the proposed installation of proven carbon capture technology,” said Farmington city manager Rob Mayes.

Closing the San Juan Generating Station and the accompanying mine, which supplies the plant’s coal, would lead to more than $105 million in lost wages, according to a study commissioned by the Four Corners Economic Development Agency. The study said the average annual salary of power plant and mine workers is $86,000. The average age of workers at the mine and plant is 47 years, the study said.

Two of the plant's four units were shut down in late 2017. In connection with those shutdowns, the Southern California Public Power Authority, the city of Anaheim, California, and the California-based M-S-R Public Power Agency exited ownership shares of the plant.

As SB 489 advances in the New Mexico legislature, Farmington, San Juan County and the Central Consolidated School District sought a 90-day extension for a third-party study to determine the feasibility of upgrading carbon capture technology at the plant. That proposal failed in last week's Senate vote. The bill is now in the House.

In Arizona, the Navajo Nation’s attempt to buy the Navajo Generating Station near Page could be at a dead end because any new owner would be stuck with the eventual cleanup costs. The plant, one of the largest in the nation, is slated for closure this year after loss of major customers.

Navajo Transitional Energy Company, created by the tribe as a last-ditch effort to save the plant, has been negotiating with Arizona’s Salt River Project, the public utility that owns the plant, since late December. The talks have stalled over the liabilities for environmental damage from the plant served by the Kayenta Coal Mine over the past 45 years. At stake are nearly 700 jobs and $40 million in annual revenue for the Navajo and Hopi tribes.

However, not all members of the nation are backing NGS and the Kayenta Mine operated by Peabody Western Coal Company.

“NGS owners and Peabody have mined and burned coal on Navajo land for 50 years,” said Nicole Horseherder, a water advocate and farmer in Black Mesa, Arizona. “That’s generations of contamination they are accountable for cleaning up, and the Navajo Nation should never let them off the hook for that. The plan to retire NGS in December provides full accountability and guarantees proper cleanup and reclamation.”

In Fruitland, New Mexico, the coal-fired Four Corners Generating five units have been reduced to two since 2014. Arizona Public Service Co. shut down three units as part of a $182 million plan to meet environmental regulations. The Four Corners plant sits on property leased from the Navajo Nation in a renegotiated agreement that will expire in 2041.

In 2016, Farmington issued $146 million of tax-exempt pollution control revenue refunding bonds on behalf of Public Service Company of New Mexico for projects at the Four Corners and San Juan plants.

The Four Corners plant and the Navajo Coal Mine that feeds it generate about $225 million a year in economic benefits to the Navajo Nation and New Mexico economies, according to Arizona Public Service. Unemployment on the reservation is about 50%, making the closing of the power generators more painful, APS said. About 30% of the Navajo Nation's general fund comes from mining and oil and gas, according to the company.

As Farmington seeks to save the San Juan plant, its co-owners Tucson Electric Power, Los Alamos County, and Utah Associated Municipal Power Systems and PNM have said they do not plan to receive power from the plant after 2022.

Decades of burning coal and storing ash in unlined ponds at coal power plants have left ground water tainted with chemicals and toxic metals, according to a March 4 report by the nonprofit Environmental Integrity Project.

Of 265 sites monitored, 91% were found to have contaminants ranging from mercury and arsenic to radioactive materials.

Since 2010, 270 coal-fired power plants across the U.S. have closed or received a definite retirement date, according to the Sierra Club, joining an international trend away from coal and toward cheaper, cleaner energy sources. Coal is the most expensive fuel for electricity generation on the market, with electricity costing around $79 per megawatt-hour versus $18 per MWh for wind power and $35 per MWh for utility scale solar power with storage, according to the Natural Resources Defense Council. Natural gas power plants generate power at around $63 per MWh.

New Mexico is one of three western states whose lawmakers are trying to ease the loss of coal-fired power generation.

In Wyoming, Gov. Mark Gordon last week signed State File 159 into a law. The bill seeks to keep Wyoming's coal-fired power plants in business by requiring a utility to try to sell the facility before decommissioning it. If a new company buys the plant, the bill requires the utility that sold the plant to buy the coal-fired power, even if a cheaper source is available.

PacifiCorp, which owns Wyoming utility Rocky Mountain Power, said in December that 60% of its coal generation is uneconomic, including plants in Wyoming.

In Montana, Senate Bill 278 would allow an electric utility to purchase more generation capacity in a Montana coal-fired plant for no more than $1, but would pass its environmental cleanup and decommissioning costs on to consumers, even if the plant closes early, and without regulatory oversight.

The Montana legislation is designed to save the Colstrip coal-fired Unit 4 that is 30% owned by NorthWestern Energy with the remaining 70% held by Washington-based Puget Sound Energy and Avista Corp., as well as Oregon-based Portland General Electric and PacifiCorp.

The bankruptcy of Colstrip supplier Westmoreland Coal Co. threatens an early shutdown to the plant, which is obligated to buy coal from Westmoreland’s Rosebud Mine for its two newest units. Creditors and the company have indicated that they do not plan to keep the contract with Colstrip.

NorthWestern argued that transitioning to coal from another mine could take years, during which Colstrip might close and never reopen.

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