Albuquerque Journal – Guest Column
BY GRAHAM BARTLETT / ALBUQUERQUE RESIDENT
Tuesday, February 26th, 2019 at 12:02am
Senate Bill 489 – The Energy Transition Act – not so fast! The consequences of passing this bill without an honest debate could be devastating to the economics of our state.
Call it risk, call it unintended consequences, but to ignore bringing everything in the open … for political expediency is dishonest.
It is obvious that making New Mexico a completely carbon-free state will be a very expensive undertaking, and with the planned shutting down of the oil and gas industry, where will that money come from? New Mexico taxpayers and energy users. The shell game of PNM floating bonds to cover the cost and then raising energy rates to repay the bonds doesn’t hide the fact that we are going to pay for this transition.
Read Entire Column Here
The City of Farmington and the people of San Juan County have found a win-win solution for the San Juan Generating Station that will make many of the costly and complex provisions in Senate Bill 489 unnecessary.
The City of Farmington currently holds the right to market the San Juan Generating Station to third-party buyers and is working with a buyer of the plant to:
• Purchase and operate the San Juan Generating Station
• Invest in advanced, proven carbon capture technology that will place the plant’s long-term CO2 emissions below the level of replacement solar generation with backup natural gas generation facilities
• Co-locate solar facilities near the plant to take advantage of existing transmission and switching equipment to further reduce the cost of transitioning to renewable energy
Advantages of this plan over the existing proposal contemplated by Senate Bill 489:
• Ratepayers in PNM’s service territory (primarily in Albuquerque and Santa Fe) will not have to fund transition costs in the $50 million-dollar range for worker transition and redevelopment costs in San Juan County.
• PNM will have more flexibility in the timing and implementation of replacement power development which will support an even lower cost transition for ratepayers.
• High paying jobs at San Juan Generating Station, Westmoreland Coal Mine and supporting contractors will be maintained.
• Property tax revenues currently supporting the Central Consolidated School District, San Juan College and San Juan County will be maintained. Maintaining these revenues will also avoid both massive property tax increases for area residents as well as the need for the State of New Mexico to guarantee CCSD’s $37 million bonds.
• State tax revenues in that amount of at least $50 million
All of these benefits can be achieved while still protecting the environment.
Tell your Senator and the Governor that you support amending Senate Bill 489 to implement this win-win solution.
PNM’s “rationale” for seeking to close San Juan Generating Station was thoroughly examined during the company’s Integrated Resource Plan filing with the New Mexico Public Regulatory Commission. The company’s justification for its plan were severely lacking. In fact, even today on PNM’s website, the following statements regarding its plan are presented:
The benefits of PNM eliminating the use of coal are:
• Cleaner environment and a significant reduction in carbon emissions.
• Lower costs and more energy options for customers over the long run because it fits better with future energy needs.
• Improve New Mexico’s leadership in the transition to cleaner, more sustainable energy resources. New Mexico is ideally suited this, given our wealth of sun, wind and technological/research talent based in the state.
That said there are some downsides as well:
• It would mean job losses, and these good-paying positions will not be easily replaced.
• It would likely increase customer electricity costs in the short-term.
Let’s look at these points one by one along with a more detailed analysis than what is presented in these shallow talking points.
1. “Cleaner environment and a significant reduction in carbon emissions”
It is likely, there will be slight reductions in carbon emissions by PNM’s plan to dramatically accelerate closure of its entire fleet of coal generation. However, this is not a forgone conclusion. The switch to a high renewable, coal free future is proving to be far more difficult in the places that are many years ahead of the United States in pursuing this path.
Germany, for example has had to reintroduce coal fired generation to provide the necessary grid stability to keep the lights on. In addition, since the ability of renewables to provide round the clock energy is untenable, other sources of reliable energy whether from coal, nuclear or natural gas are necessary in large amounts to provide reliable electric service.
In addition, since the renewable fuel standard approach to electric energy production planning has been implemented. The cost of renewables is dramatically understated and the cost of other more reliable sources is dramatically overstated.
2. “Lower costs and more energy options for customers over the long run because it fits better with future energy needs.”
Advocates of ever- increasing amounts of renewable energy are quick to point out the “low cost” nature of renewable energy. For example, PNM testified during the hearing on its Integrated Resource Plan that the cost of solar is $.03/kilowatt. But this so called low-cost option is rife with additional costs. The sun obviously does not shine at night, and since there is relatively small amounts of energy produced from solar panels in the early morning and late afternoon, without cost effective storage technologies, solar energy is currently at best a condiment source of electricity.
It is also interesting to note that in PNM’s Integrated Resource Plan, $0.05/kW coal generation was going to be largely replaced with $0.11kW natural gas generation. Depending on how long it takes cost-effective electricity storage solutions to emerge, the long run may not come for a very long time.
Without cost effective battery storage which is the holy grail of renewable energy becoming core technology for the United States, the current path of more and more renewables is simply a state sanctioned way for utilities to make more profits at the expense of their customers.
The lower cost that is promised in the long term only comes with dramatically more cost-effective battery storage. The big question is when will this cost-effective battery storage emerge, maybe in years, maybe in decades, maybe even. As things now stand, higher and higher levels of renewable energy implemented by renewable portfolio standards look a lot Spaceport New Mexico, an expensive idea based on the wishful thinking of a few that costs the rest of us lots of money.
It is very telling that increased renewable portfolio standard percentages are constantly called for by advocates of renewable electricity generation. These advocates and their utility partners cite the “low cost” of renewables, but at the same time call for higher levels of mandated use of renewable power. If the true cost of renewables was indeed as low as is stated, utilities would put such generation into its portfolio for purely economic reasons.
The real answer is that while solar powered electricity may be $.03/kilowatt when the sun is shining at noon, the cost of having such a limited use source of energy makes the cost of everything else go up. From a cost perspective, the closest analogy is low cost inkjet printers. The printers cost say $75, but the replacement ink cartridges are many times the cost of the printer over just a few years.
With solar, the price of electricity when the sun is shining is low, but the amount of additional generating capacity that must be available when solar output is not at its peak (most of the time) is significant. In addition, the amount of solar energy available when the sunshine is strong is already greater that what is necessary for cost efficient operation of PNM system much of the time.
The ever-increasing renewable portfolio standard is the only thing that makes PNM’s risky plan to close San Juan Generating Station early (and soon to follow Four Corners Generating Station) even appear to be a good idea. Requiring more renewable power regardless of total costs to customers may benefit the environment some, but the real benefit will be that PNM will be able to join the California utilities by making otherwise unneeded investments in new generating capacity, and in the process, make far higher profits for their shareholders, and have all of it paid for by much higher rates by PNM’s customers.
Were such a plan not wrapped in the politically correct position that it is worth it to get rid of coal as soon as possible, there would be calls for PNM to be run out of New Mexico. But as it is, PNM and the advocates of early closure of San Juan Generating Station, seek to put New Mexico on the coal must go as fast as possible regardless of the cost to ordinary New Mexicans.
PNM’s claim of low costs and more energy choices over the long-term is dubious and misleading. First, depending on the definition of short term and long term, it is very possible that New Mexico’s economy will literally not make it to the long term if short term electricity cost increase by as much as is projected.
PNM’s rates will rise for many reasons including: a) potential recovery of the “stranded costs” related to San Juan Generating Station because of PNM’s plan to accelerate the closure date, b) replacing partially depreciated (lower cost) generating capacity with new generating capacity, c) having to have a far higher amount of installed but not fully utilized generating capacity (more power plants of every kind) whether it be coal, gas, nuclear to be available when renewables are not effective nor sufficient (much of the time).
You better believe that when renewables are the effective and efficient source of power (energy over time) that it now pretends to be, you won’t need an increased renewable portfolio standard to drive coal, natural gas or even nuclear out of utility portfolio mixes. The engineering and economics will drive investment, not the heavy-handed politics.
In the 2017 New Mexico legislative session, PNM promoted a bill that would provide the company the opportunity to obtain full recovery from rate payers of the “stranded costs” caused by PNM’s own decision to close San Juan Generating Station in 2022. An additional telling provision in PNM’s proposal would have increased the renewable portfolio standard to 50% by 2030. These two provisions in the same piece of legislation highlight the disingenuous game that PNM is attempting to play: increase stranded costs by ever higher renewable portfolio standard requirements, get full recovery of the “stranded costs” that PNM’s own plan created, invest in new generation both renewable and natural gas to increase PNM’s rate base on which the profit to shareholders is determined, and make the utility rate payers of one the nation’s poorest states foot the bill.
What is needed isn’t higher percentages in the renewable portfolio standard. What is needed is caps on rate increases when utilities implement feel good schemes with their customers taking on greater risks and greater costs.
3.”Improve New Mexico’s leadership in the transition to cleaner, more sustainable energy resources. New Mexico is ideally suited this, given our wealth of sun, wind and technological/research talent based in the state.”
PNM’s plan may indeed improve New Mexico’s leadership in the transition to more sustainable energy resources, but the cost of accelerating the timing of this natural progression will be staggering for PNM’s rate payers, just like it was in California. Electric rates in New Mexico that are lower and more predictable than in California are a valuable tool to attract investment and jobs into New Mexico.
New Mexico’s abundant wind and solar potential is a very real resource. However, this resource will be developed with or without PNM implementing its plan to dramatically raise rates. Independent power producers are much better equipped to address new projects without forcing PNM’s customers to foot the bill and shoulder the risks.
4. “It would mean job losses, and these good-paying positions will not be easily replaced.”
I will mean job losses, lot of them, 1,500 direct jobs to be exact at the San Juan Generating Station, Westmoreland Coal Mine and related contractors and supporting businesses. These are jobs that will not be easily replaced. It is also worth noting that members of the Navajo Nation will be especially hard hit. Many of the employees who will lose their job are Navajo and many of the income from their jobs often support large families and even extended families.
As far as replacing these jobs, San Juan County has already fallen on hard times due to persistent low natural gas prices. A 2016 report showed that the Farmington, New Mexico metropolitan statistical area was the fastest-shrinking city in the country. If you lose your job in the great Farmington area, it is not going to be easy to find a new one.
5. “It would likely increase customer electricity costs in the short-term.”
This may be the understatement of the year, but at least PNM acknowledges that electricity costs will go up in the short term. What is meant by the short term is not clear. It may mean years or even decades. And keep in mind that much of PNM’s plan is based on the risky strategy already implemented by California. The California approach has caused rates to rise to such high levels that lawsuits are now being filed by civil rights groups on behalf of the poor.
In fact, California’s current electricity price fiasco is not unprecedented. In 2000 and 2001, California set up an untested market-based generation scheme that regulators in California assured could not be manipulated. A series of blackouts and astronomical wholesale electrical prices caused exorbitant rate increase for consumers. In addition, Pacific Gas and Electric Company was forced to file bankruptcy. After the crisis, it was learned the Enron did indeed manipulate prices, the very thing that California regulators said was not possible.
Despite PNM advocating for 50% renewables in its generation portfolio, the company has admitted that at this level of renewables, 70% of daily customer demand will not be able to be met without building significant additional natural gas facilities.
Another impact of a high level regulatory renewable energy requirement is that you have way too much energy at certain times of the day, midday in the case of solar. This creates what is known as the “duck curve.” The implication of the duck curve is that solar generating assets that customers must pay for are turned off (curtailed) during the middle of the day.
As discussed above, batteries would indeed solve this problem, but at what price. Existing solutions such as the Tesla Powerwall are often cited as the technology that will allow for 80% or even 100% renewable electricity. The math on such a solution is not promising. A recent analysis showed that at the 80% level, 15 Powerwalls would be required for every resident of California, at 100% renewable energy 60 Powerwalls would be required for every man, woman and child in the state.
In New Mexico, 60 Powerwalls per person would cost $750 billion. To put that in perspective, the gross state product (the value of all goods and services produced in New Mexico in 2014 was less than $100 billion and the State of New Mexico’s operating budget was just under $6billion in 2017).
Higher electric rates are a big problem for New Mexicans. First of all, higher electric rates will make businesses in New Mexico less competitive than surrounding states. This creates problems for the businesses and industries that are already here by increasing their operating costs. This makes it harder for existing businesses to expand and grow.
Second, higher electric costs make it harder to attract new businesses to New Mexico. When businesses look at where to relocate, there are many factors that hurts New Mexico like crime rate, education and workforce readiness. We don’t need to have electric rates be moved from the “good column” to the “bad column” for businesses looking to relocate.
Oil and gas revenues appear to once again have saved the day for the fiscal health of the State of New Mexico’s upcoming budget. But if diversifying and growing our economy are going to be real and not just lip service, we need affordable electricity rates.
California, in particular, is seeing an exodus of businesses that are fleeing that state because of policies hostile to business, including high electric rates. We need these businesses to seriously consider relocating to New Mexico to help diversify our economy. The prospect of high electric rates in New Mexico that will be created by policies like those they are fleeing in California, will make companies much less likely to make New Mexico their new home.
The cost of PNM’s existing plans to raise rates will be felt most directly by the poorest New Mexicans in their service territory. Higher utility rates that can be avoided are essentially a regressive tax on the poor. When electric costs eat away at the incomes of the poor, their ability to pay for food, shelter, clothing and health care all suffer. It heartless to not take into account those in poverty when making utility policy, especially when rate increases are likely as even PNM admits.
Senate Bill 489 (click to download) bails out New Mexico’s largest public utility, PNM. This bill doesn’t even contemplate protecting electric customers from rapidly increasing electric rates. This bill is bad public policy that if enacted without adequate safeguard in place will come back to haunt the state’s economy and utility customers for years to come. Contact your legislators (look up here), and tell them New Mexico simply cannot afford to enrich utility shareholders by forcing rapidly rising electric rates on customers. Here’s why this bill is bad for New Mexico:
• SB 489 is bad for New Mexico and not only will increase rates statewide it will impact business, reduce jobs, and diminish state tax revenues needed for education, infrastructure and public safety.
• SB 489 gives PNM a blank check at the expense of ratepayers.
• If SB 489 is passed PNM will have the ability, completely unsupervised by PRC or any other regulatory body, to determine how much it includes in securitization of the undepreciated assets and other costs of San Juan Generating Station of an amount between $375 million and 150% of the value of those assets.
• SB 489 further requires that its customers will each pay the securitized amount back over the lifetime of the securitization bonds. Unlike last year’s bill, this year’s bill does not require PNM to show customer savings.
• SB 489 additionally requires coops (instead of Tri-State, their generation supplier) and all public utilities in the state to comply with drastic renewable energy mandates:
* An increase from 20% to 40% by 2025
* 50% by 2030
* 80% renewable by 2050 with the rest being composed of zero carbon resources (ie. Nuclear)
• The bill incentives utilities to further exceed these mandates by removing ratepayer protections and relaxing PRC oversight standards from what is in current law: reliable service at the least cost – to a standard that does not appear to actually protect increased cost to customers and is instead heavily weighted in building renewable generation at an alarming rate.
• Because renewables can only meet customer demand for 1/3 of the day, this means that customers will not only be paying for traditional generation, they will also pay for the rapid increase of renewables.
• California is only at 35% renewable and their rates have increased by 60 – 80%.
• This means in the next 5 years we can see a similar rise in rates, with rates continuing to skyrocket as mandates are increased.
• Further, by PNM’s own admission in the IRP case, renewables over 50% create excess energy that risks shorting out the grid and must be curtailed.
• Curtailment, just like in California, requires utilities to literally waste resources or pay other states to take their extra renewable power, especially solar generation.
• Anyway you slice it, this bill is bad for New Mexicans. It harms customers at the expense of increased profits for utility shareholders and renewable energy investors.
Senate Bill 489 has something for almost everyone, except the utility customers that will need to fund this monumental transition to renewable energy. The bill has a bailout for PNM to ensure that its shareholders don’t have to face the negative financial consequences of the plan.
The bill certainly has something for supporters of wind and solar energy. The renewable portfolio standard increases will ensure that more wind and solar facilities are built.
What Senate Bill 489 lacks is customer protection from rapidly rising electric rates like those that have been seen in California under a similar plan. If renewables are as cost effective as the supporters of this bill have been saying, adding a rate cap to protect customers shouldn’t be too much to ask for.
Tell your legislators that this bill needs to protect customers by adding a rate cap. The purpose of Senate Bill 489 shouldn’t be to enrich utility shareholders at the expense of utility customers during the transition to additional renewable energy.
Click or Right Click Here to Download SB489
Opinion Post from Farmington Daily Times. Paul J. Gessing, Rio Grande Foundation Published 5:33 a.m. MT Feb. 5, 2019 | Updated 12:51 p.m. MT Feb. 5, 2019.
Environmental groups, Governor Lujan-Grisham, and even Public Service Company of New Mexico want us to believe that their plans to rapidly increase renewable energy are cost-competitive.
New Mexicans voted for change in 2018 and, as a result, there are legislative initiatives to raise the State’s “renewable portfolio standard,” or RPS, from 20 percent to 80 percent. Unfortunately, what voters haven’t been told is that this extreme expansion of the RPS will dramatically increase our electric bills.
In order to make way for rapid expansion of the RPS and bolster shareholder profits, PNM has decided to shut-down the coal-fired San Juan Generating Station near Farmington more than 30 years early. For the last 50 years, PNM has credited this plant at the PRC as the reason why PNM has been able to provide New Mexicans with low-cost power for the last 50 years. The plant was also just retrofitted, at a cost of $635 million, to remove more pollutants from its emissions and is now one of the cleanest plants in the country. PNM even admits that closing SJGS will increase our electric bills.
Despite price declines in wind and solar, we believe the replacement of a coal-fired power plant with a combination of wind, solar, and gas (supplemented by battery backup with unproven effectiveness at large scale) will not be cheap. A 2016 study produced by the Foundation estimated that from 2011 to 2020, New Mexico’s RPS would cost rate payers an astonishing $2.3 billion above and beyond what they would otherwise pay for electricity.
We stand by this report and note that other sources indicate New Mexico’s electricity prices rose about 30% since the RPS took effect in 2005. This increase is attributable to the RPS because it occurred at a time when the prices of traditional electricity generation sources, like coal and natural gas, have declined.
The cost of switching to “cheaper” sources of renewable electricity shouldn’t be borne by ratepayers or taxpayers. One would hope that Governor Lujan-Grisham, the Legislature, and PRC share this view. After all, they represent average New Mexicans and ratepayers, not just utilities and environmental groups.
One other thing that needs to be considered is the economic viability of the Four Corners area of our State. We at the Rio Grande Foundation embrace free-market economics and have no qualms about market corrections and corresponding impacts. But closure of SJGS is different. PNM is shielded from market corrections because it has a monopoly over its customers and a guaranteed rate-of-return. In exchange, PNM is bound to provide customers with reliable low-cost electricity and to conduct its business in a manner that is not detrimental to the public interest.
Here, not only does PNM admit our bills will increase, but PNM’s actions are also detrimental to our state’s budget.
If the market truly is pushing PNM towards other electricity sources, policymakers, taxpayers, and ratepayers should welcome that transition, but they shouldn’t be forced to foot the bill in case their assertions prove to be wrong.
For the good of New Mexico’s economy and ratepayers, any effort to provide PNM a financial bailout for its move out of San Juan Generating Station should also include basic protections for New Mexico ratepayers. The best protection is a hard cap on electricity rates during the rapid RPS expansion.
Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.